Effect of quality of governance on the relationship between illicit financial flows and economic growth

Padil, Hazlina Mohd; Kasim, Eley Suzana; Razali, Fazlida Mohd; Atan, Ruhaya; Aminullah, Haziq

doi:10.1108/jfc-10-2021-0226

Cited by 3 publications

(10 citation statements)

References 46 publications

(52 reference statements)

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“…The magnitude of the growth impact across the three classes of governance reflects that economic governance has the greatest impact on economic growth. This result aligns with the earlier assertions by Asongu and Odhiambo (2019), Padil et al (2021) and Afolabi et al (2022) that good governance is a major growth-enabler. This is because good governance improves a country’s ease of doing business and enables a friendly business climate that not only incentivise domestic firms but also attract foreign firms to establish their business in such country.…”

Section: Resultssupporting

confidence: 91%

“…With regard to governance indicators, empirical studies have shown that countries with good governance indicators tend to attain higher growth than countries where governance is weak (Asongu and Nnanna, 2020; Padil et al , 2021; Afolabi et al , 2022). In view of this, the estimate of governance indicators should have a positive sign.…”

Section: Methodsmentioning

confidence: 99%

“…Recent studies have extended the frontier of knowledge on the subject matter by considering the moderating role of governance indicators on the relationship between IFFs and economic growth, although the findings differed based on the measure of governance adopted. For example, Padil et al (2021) assessed the governance and growth effects of IFFs as well as the moderating role quality of governance in the IFFs–growth nexus in nine ASEAN countries between 2008 and 2019. The PLS result showed that IFFs adversely affect the quality of governance and economic growth.…”

Section: Brief Review Of Related Studiesmentioning

confidence: 99%

“…However, there appears to be no consensus on the role governance indicators play in moderating the growth effect of IFFs. Even though Padil et al (2021) conducted an empirical study on the moderating role of governance in the relationship between illicit financial and economic growth in nine member states of the ASEAN, a study of this nature is rare for the SSA, a region with high volume of trade misinvoicing and weak governance. This paper fills this research gap.…”

Section: Brief Review Of Related Studiesmentioning

confidence: 99%

“…Previous studies have focused on the effect of trade misinvoicing or illicit financial flow (IFF) on economic growth in both time-series and panel studies (Kumar, 2012;Hetemi et al, 2018;Kurebwa, 2018;Bawa and Ogwiji, 2022). Padil et al (2021) extended the literature by providing empirical evidence on the role governance plays in the nexus in nine member states of the Association of Southeast Asian Nations (ASEAN) using the partial least squares (PLS) estimation method. While the current paper further contributes to the literature by exploring the moderating role of governance in the relationship between trade misinvoicing and economic growth in 35 SSA countries using the feasible generalised least squares (FGLS) estimator, it deviates from Padil et al (2021) in three ways.…”

Section: Growth Effectmentioning

confidence: 99%

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

Babatunde

Afolabi²

2023

IJDI

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Purpose The growing volume of trade misinvoicing in Sub-Saharan Africa (SSA) calls for serious concern, particularly given its effect on macroeconomic fundamentals. Despite the growing body of literature on the growth effect of trade misinvoicing, empirical evidence on the role of governance in moderating the effect is quite scarce, particularly for SSA. The purpose of this paper is to provide insights into the growth effect of trade misinvoicing in SSA as well as the moderating role of governance in this regard. Design/methodology/approach The feasible generalised least square estimator was applied to analyse relevant data, spanning 2009–2018, of 35 SSA countries. Governance indicators were classified into economic, political and institutional governance, and their individual role in moderating the nexus between trade misinvoicing and economic growth was explored. Findings This paper showed the presence of cross-sectional dependence among SSA countries and long-run convergence of the estimated variables. The empirical finding showed that trade misinvoicing has a negative growth effect in the selected SSA countries, but both economic and political governance are crucial in lowering the observed negative growth effect. Practical implications To curtail trade misinvoicing, SSA policymakers should go beyond just designing anti-money laundering policies to effectively implementing the policies for improved growth prospects. More so, the government of each SSA country must devise means of strengthening governance and building effective, accountable and transparent institutional frameworks that will constantly check and discourage trade misinvoicing activities. Originality/value The originality of this paper stems from its novel assessment of the role governance plays in moderating the growth effect of trade misinvoicing in SSA using the feasible generalised least square estimator. It also details the strategies needed to effectively tackle trade misinvoicing.

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Section: Resultssupporting

confidence: 91%

Section: Methodsmentioning

confidence: 99%

Section: Brief Review Of Related Studiesmentioning

confidence: 99%

Section: Brief Review Of Related Studiesmentioning

confidence: 99%

Section: Growth Effectmentioning

confidence: 99%

See 3 more Smart Citations

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

Babatunde

Afolabi²

2023

IJDI

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Revisiting the tax evasion and corruption–economic development nexus in Ghana: fresh evidence from a SEM approach

Amoh

Ofori‐Boateng

Nsor-Ambala

et al. 2023

JEAS

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PurposeThis study explored the tax evasion and corruption–economic development nexus in Ghana and the moderating role of institutional quality in this relationship.Design/methodology/approachTo achieve this objective, this study employed the structural equation modelling (SEM) strategy and maximum likelihood (ML) estimation method on selected quarterised data from 1996 to 2020.FindingsThe study found that tax evasion has a positive impact on GDP per capita and urbanisation but a negative impact on the Economic Freedom of the World Index (EFWI). The study revealed that corruption has a positive relationship with GDP per capita but relates with EFWI inversely. Finally, the study found that institutional quality moderates the nexus between tax evasion and corruption and economic development.Social implicationsThe findings imply that the quality of state institutions has a significant impact on the government's ability to control tax evasion and corruption in order to drive economic development.Originality/valueOne novelty of the study is the examination of the combined effects of tax evasion and corruption as exogenous variables in a single econometric model. Again, to moderate the multivariate relationships of the study, the principal component analysis (PCA) was used to create an institutional quality index. The study recommends that policymakers implement comprehensive tax evasion and corruption reduction strategies simultaneously in order to increase tax revenues for economic development and SDGs achievement.

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Is money laundering a hurdle to achieving Sustainable Development Goals?

Gueddari

Saafi²,

Nouira

2023

JMLC

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Purpose The purpose of this study provide answers to the following research questions: Whether and to what extent money laundering affects the achievability and the trend of Sustainable Development Goals (SDGs)?; Does the influence of money laundering on the SDGs’ achievement differ from developing to developed countries?; How does the influence of money laundering vary among the 17 SDGs? Design/methodology/approach The paper’s analysis involves two key parts. In the first part, the authors perform a multivariate analysis to examine the influence of money laundering on the achievement of SDGs, and then in the second part, the authors make use of an ordered probit regression model to investigate the impact of money laundering on the trend of attaining each SDG. Findings Using a sample of 98 developed and developing countries, the regression results from multivariate analysis estimates show that money laundering has a strong inhibiting effect on the achievement of almost all the SDGs in the whole sample of countries and the sub-sample of developing countries, whereas no significant effect is observed for developed countries. However, for the SDG trends, the ordered probit estimates reveal that the harmful effect of money laundering occurs for all countries regardless their development level. In addition, perhaps surprisingly, the results from both the approaches yield also evidence advocating that money laundering activities might be associated with positive externalities on production and consumption. In fact, money laundering is found to have a significant positive influence on the achievement and the trend of SDG12 (Sustainable Consumption and Production). Overall, this study’s findings do have interesting policy implications, especially for developing countries. In these countries, prioritising the formulation and implementation of sound anti-money laundering policies is a necessary requirement for their progress towards achieving the SDGs. Originality/value The long-standing tradition of previous empirical studies examining the nexus between money laundering and sustainable development concentrates mainly on the economic dimension of sustainability (i.e. economic growth). However, little is known about the consequences of money laundering activities on the environment and the societies. Consequently, this study seeks to fill this gap by assessing the influence of money laundering on the achievement of the economic, environmental and social goals of sustainable development. To the best of the authors’ knowledge, this is the first integrated study to analyse the potential repercussions of money laundering on the SDGs’ achievement.

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Effect of quality of governance on the relationship between illicit financial flows and economic growth

Cited by 3 publications

References 46 publications

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

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

Revisiting the tax evasion and corruption–economic development nexus in Ghana: fresh evidence from a SEM approach

Is money laundering a hurdle to achieving Sustainable Development Goals?

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