Trillion dollar estimate: Illicit financial flows from developing countries

Volker Nitsch

No 227, Darmstadt Discussion Papers in Economics from Darmstadt University of Technology, Department of Law and Economics

Abstract: Recent estimates suggest that developing countries lose about 1 trillion US dollars each year due to illicit financial flows. This paper reviews the empirical methodology that underlies those estimates. Various critical aspects of the analytical approach are highlighted, focusing in particular on deficiencies in the use of mirror trade statistics to quantify the extent of capital outflows due to trade misinvoicing. Serious issues in the empirical analysis include, among others, arbitrary assumptions, mixed methodologies and skewed sampling. As a result, it is argued that the quantitative results obtained from those exercises have no substantive meaning. The trillion-dollar estimate of illicit financial flows from developing countries, therefore, lacks evidence and is uncorroborated.

Keywords: trade misinvoicing; mispricing; capital flight (search for similar items in EconPapers)
JEL-codes: F14 F38 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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Working Paper: Trillion Dollar Estimate: Illicit Financial Flows from Developing Countries (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:darddp:227

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