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Illicit money flows as motives for FDI

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  • Perez, M. Fabricio
  • Brada, Josef C.
  • Drabek, Zdenek

Abstract

We examine the role of FDI in facilitating money laundering and illegal capital flight, focusing on transition economies’ FDI outflows because they largely reflect current investment decisions rather than the inertia of past decisions. We estimate a model of FDI outflows in which illicit money flows influence the volume of FDI directed toward countries considered to be centers of money laundering. We show that traditional models of FDI are not able to account for these investment flows and that our results are robust when additional explanatory variables such as host country tax rates, governance, corruption, and cultural differences between the home and host country are included in the model. We estimate that 6–10% of total FDI outflows and over 20% of FDI to money-laundering countries from our sample were made to facilitate illicit money flows.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 40 (2012)
Issue (Month): 1 ()
Pages: 108-126

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Handle: RePEc:eee:jcecon:v:40:y:2012:i:1:p:108-126

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Web page: http://www.elsevier.com/locate/inca/622864

Related research

Keywords: Foreign direct investment; Capital flight; Money laundering; Illicit money flows;

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References

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Citations

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Cited by:
  1. Brada, Josef C. & Kutan, Ali M. & Vukšić, Goran, 2013. "Capital Flight in the Presence of Domestic Borrowing: Evidence from Eastern European Economies," World Development, Elsevier, Elsevier, vol. 51(C), pages 32-46.
  2. Svetlana Ledyaeva & Päivi Karhunen & John Whalley, 2013. "Offshore jurisdictions (including Cyprus), corruption money laundering and Russian round-trip investment," NBER Working Papers 19019, National Bureau of Economic Research, Inc.
  3. Svetlana Ledyaeva & Päivi Karhunen & John Whalley, 2013. "If Foreign Investment Is not Foreign: Round-Trip Versus Genuine Foreign Investment in Russia," Working Papers, CEPII research center 2013-05, CEPII research center.
  4. Ramos, Miguel A. & Ashby, Nathan J., 2013. "Heterogeneous firm response to organized crime: Evidence from FDI in Mexico," Journal of International Management, Elsevier, Elsevier, vol. 19(2), pages 176-194.
  5. repec:idb:brikps:81941 is not listed on IDEAS
  6. Josef Brada & Ali Kutan & Goran Vukšić, 2011. "The costs of moving money across borders and the volume of capital flight: the case of Russia and other CIS countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 147(4), pages 717-744, November.

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