Does illicit financial flows crowd‐out domestic investment? Evidence from Sub‐Saharan Africa economic regions

Abstract

The effect of illicit financial flows (IFFs) on macroeconomic performance has been subjected to debates in the academic and policy arena, albeit with little evidence on its investment effect. This study contributes to the IFF‐investment literature by focusing on the four economic regions in Sub‐Saharan Africa (SSA), where IFFs have been growing consistently. The Pooled Mean Group (PMG) and panel dynamic ordinary least square (DOLS) estimators were utilized to analyse data for the period, 2008–2020. The result signalled inter‐connection among Sub‐Saharan African countries and affirmed the existence of a long‐run relationship among the variables considered. The empirical findings showed that IFFs crowd‐out domestic investment among the four SSA economic regions in the short and long time dimensions. This study, therefore, advocates for synergy among the stakeholders in each economic region to devise deliberate strategies to fight against the menace of IFFs toward successfully achieving Sustainable Development Goals by 2030.

Growth effect of trade misinvoicing in Sub-Saharan Africa: the role of governance

“…The amount of financial resources leaving the confines of SSA partly explains the region’s slow economic progress. This result corroborates earlier findings such as Afolabi (2022a, 2023), which showed that trade misinvoicing adversely affect economic growth through the government revenue and domestic investment channels. Similarly, it parallels the view of Podder (2022), who argued that trade misinvoicing has corrosive effects on macroeconomic performance as it reduces government revenue base, lowers foreign exchange earnings, depletes external reserve and, ultimately, stifle economic growth.…”

“…The authors alluded to the rising volume of trade misinvoicing and showed that it is highly detrimental to economic growth in the SSA region. Similarly, Afolabi (2022a) showed that IFFs crowd-out domestic investment and stifles growth in SSA economic regions. The narrative is the same for country-specific studies.…”

“…Thus, the estimate of trade openness could either be positive or negative, as SSA countries have a mix of current account surplus and deficit. Past studies provided overwhelming empirical evidence that IFFs, including trade misinvoicing, cripple government revenue mobilisation ratio and attenuate economic growth (Ngwakwe, 2015;Afolabi, 2022aAfolabi, , 2023. It is, therefore, expected that the estimate of trade misinvoicing will be negative.…”

“…Consequently, many countries in the region have experienced episodes of positive economic growth, rising government revenue and foreign exchange earnings as well as substantial knowledge and technology transfer. However, the pervasive money laundering and other corrupt practices, including among multinational corporations operating in the region, undermines the quest for economic transformation and erodes the limited available domestic resources in the region, making sustainable development difficult to achieve (Signe et al , 2020; Afolabi, 2022a). The growing volume of intra-regional and inter-regional trade has facilitated trade misinvoicing as the tendency for falsifying trade transactions increases with increasing trade volume.…”

Examining the Role of Trade on the Relationship between Environmental Quality and Energy Consumption: Insights from Sub Saharan Africa

“…If not immediately handled, it might make Sub-Saharan Africa's environmental issues even worse. According to Afolabi [42], and Zuo et al [33], this finding follows theoretical predictions and the views of these researchers.…”