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Illicit Financial Flows from the Least Developed Countries: 1990-2008
United Nations Development Program Discussion Paper (2011)
  • Dev Kar, Global Financial Integrity
Abstract

This paper explores the scale and composition of illicit financial flows from the 48 Least Developed Countries (LDCs). Illicit financial flows involve the cross-border transfer of the proceeds of corruption, trade in contraband goods, criminal activities and tax evasion.

In recent years, considerable interest has arisen over the extent to which such flows may have a detrimental impact on development and governance in both developed and developing countries alike. This issue has been recognised by the UN as important for development and achievement of the Millennium Development Goals (MDGs). Illicit capital flight, where it occurs, is a major hindrance to the mobilisation of domestic resources for development. In many cases, it significantly reduces the volume of resources available for investment in the MDGs and productive capacities. Through the United Nations, the international community has committed to strengthen national and multilateral efforts to address it. As the deadline for achievement of the MDGs draws closer, it is vital understand more about the nature of this problem and to explore

possible policy solutions, especially for those countries furthest off-track towards the MDGs.

The study’s indicative results find that illicit financial flows from the LDCs have increased from US$9.7 billion in 1990 to US$26.3 billion in 2008 implying an inflation-adjusted rate of increase of 6.2 percent per annum. Conservative (lower-bound) estimates indicate that illicit flows have increased from US$7.9 billion in 1990 to US$20.2 billion in 2008. The top ten exporters of illicit capital account for 63 percent of total outflows from the LDCs while the top 20 account for nearly 83 percent. Trade mispricing accounts for the bulk (65-70 percent) of illicit outflows from the LDCs, and the propensity for mispricing has increased along with increasing external trade. Empirical research on illicit flows indicates that there are three types of factors driving illicit flows—macroeconomic, structural, and governance-related.

Keywords
  • Illicit flows,
  • Least developed countries,
  • capital flight
Publication Date
May, 2011
Publisher Statement
United Nations Development Programme Bureau for Development Policy One United Nations Plaza New York, NY 10017, USA E-mail: poverty.reduction@undp.org and dgg@undp.org Web site: www.undp.org/poverty and www.undp.org/governance Acknowledgements This Discussion Paper has been commissioned by UNDP as a contribution to the United Nation’s IV conference on the Least Developed Countries (LDCs), Istanbul, Turkey in May 2011. UNDP warmly welcomes feedback from interested stakeholders on any aspect of the research and conclusions drawn. It has been written by Dev Kar, formerly a Senior Economist at the International Monetary Fund (IMF), and now Lead Economist at Global Financial Integrity (GFI), Center for International Policy. The author would like to thank UNDP for their interest in furthering the public policy debate on this issue and for financially supporting this research. He would also like to thank Karly Curcio, formerly an Economist at GFI, for excellent research assistance, Abbas Akhtar and Thomas Buller, staff interns for assistance with the charts and tables, and Raymond Baker and other staff at GFI for helpful comments. Thanks are also due to Gail Hurley, Anga Timilisina and Phil Matsheza of UNDP and Michael Lennard of UN DESA for their helpful comments and suggestions on the first draft of the paper; thanks also to Gail Hurley and Shams Banihani for editing the paper. Any errors that remain are the author’s responsibility.
Citation Information
Dev Kar. "Illicit Financial Flows from the Least Developed Countries: 1990-2008" United Nations Development Program Discussion Paper (2011)
Available at: http://works.bepress.com/dev_kar/3/