Social costs of illicit financial flows in low- and middle-income countries: the case of infant vaccination coverage

Abstract

The liberalization of capital flows is generally associated with prospects of higher growth. However, in developing countries, opening the capital account may also facilitate the flow of capital out of the country through illicit financial flows (IFFs). Given that IFFs drain the scarce public resources available to finance the provision of public goods and services, the extent of illicit capital flows from developing countries is serious cause for concern. In this context, as a first step in analysing the social costs of IFFs in developing countries, this article studied the relationship between IFFs and infant immunization coverage rates. Data for 56 low- and middle-income countries for the period 2002-13 were used in the empirical analysis. The main result was that the relative level of IFFs to total trade negatively impacted vaccination coverage but only in the case of countries with very high levels of perceived corruption. In this case, the total effect of an annual 1 p.p. increase in the ratio of IFFs to total trade was to reduce the level of vaccination coverage rates over the coming years by 0.19 p.p. Given that there was an annual average of 18 million infants in this cluster of 25 countries, this result suggests that at least 34 000 children may not receive this basic health care intervention in the future as a consequence of this increase in IFFs in any particular year.

Illicit financial flows and the provision of child and maternal health services in low- and middle-income countries

“…Given this background, the main aim of this article was to analyse the association between cross-country differences in the level of IFFs and current dissimilarities in the coverage of basic health services across countries. In this sense, this study contributes to the existing literature [17][18][19] in several ways. Firstly, it provides evidence on the negative association between the increase in IFFs and the provision of a representative set of essential health services, including those related to the health care of vulnerable populations (i.e.…”

“…It is also noteworthy that in the case of DTP3 and measles, the values of the estimated coefficients for IFFT were not far from the estimated long-run impact of IFFT on the infant vaccination coverage rate (− 0.19 p.p. in the level of coverage of DPT3, measles, and polio in combination) estimated by Ortega et al [ 19 ], who used panel data regression methods and a sample of 56 LMICS for the period 2002 to 2013. Given that there was an estimated annual average of 65 million infants in the countries in the sample, this result suggests that around 190,000 children may not receive these basic healthcare interventions as a long-run effect of this increase in IFFT.…”

“…how much money was transferred illicitly to foreign countries for each dollar traded), rather than IFF/GDP or IFF per capita, was an unbiased measure of the scale of this problem. Thus, the variable IFFT was obtained following the methods described in Ortega et al [ 19 ], in which annual panel IFFT data for 56 low- and middle-income countries for the period 2002–13 were calculated.…”

“…in the absence of leaks, such as IFFs, corruption, and debt service). On the other hand, the negative effect of IFFs on infant immunization coverage rates in LMICs was analysed by Ortega et al [ 19 ].…”

“…Thus, although the magnitude of IFFs and their potential role in damaging the capacity of the state budget in LMICs is increasingly recognized, a few studies have found evidence for the effect of IFFs on the provision of public goods and services [17][18][19]. These studies are examples of the few research efforts that have attempted to provide quantitative studies that assess the relationships between IFFs and health services.…”