Illicit Financial Flows and International Trade Nexus Under Inadequate Governance Structures : A Case of Sub‐Saharan Africa

The primary objective of this research is to investigate the association between illicit financial flows and international trade. This study used the feasible generalized least squares and system GMM methods for empirical analysis. Growth and development targets are challenging in Sub-Saharan Africa due to a larger amount of illicit financial outflows towards developed countries. These illicit financial outflows are surprisingly greater than the amount of foreign aid provided to these countries. This scenario urgently requires determining the key global and governance factors that enhance illicit financial flows (IFFs) so that this region can finance its development agenda without foreign assistance. Empirical outcomes show significantly higher illicit financial flows with increasing levels of imports and exports, as individuals and companies misrepresent the invoicing instruments to externalise funds. The empirical estimates of political stability, voice and accountability, government effectiveness and corruption control rate are overwhelmingly negative. These outcomes suggest that the full implementation of all the Financial Action Task Force’s anti-money laundering recommendations by the government authorities is needed. Furthermore, there should be easy access to the most recently available commodity-level world market pricing information to help overcome both illicit financial flows and trade misinvoicing as it happens