Illicit Financial Flows and the Growth of Developing Countries : Unraveling the Intricacies of a Growing Global Problem

Illicit financial flows (IFFs) not only deprive developing countries of domestic resources for development, but also pose a continuing challenge for sustained growth, governance, and effective social justice. This paper provides theoretical and empirical evidence on this growing concern for the period 2000-2013. It estimates the effects of IFFs on economic growth in developing countries, reinforcing the need to interrelate key distorting factors and growth contexts. Empirically, the paper shows that IFF outflows have a negative effect in aggregate terms, even when we take into account the effect of domestic governance and institutions. Similarly, it underlines the importance of corrective measures to tackle IFFs in order to increase welfare, sustain growth, and upgrade institutional capacity. Finally, it reinforces the systemic importance and complexity of IFFs, and their potential harmful effects on economic, social and financial stability and global imbalances