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Financial liberalisation and illicit financial outflows in African countries: does institutional quality and macroeconomic stability matter?

Author

Listed:
  • Leward Jeke
  • Clement Zibusiso Moyo
  • Richard Apau

Abstract

Purpose - Although the consequences of illicit financial outflows on the economies of the world continue to exert adverse impacts on many economies of the world, explanations regarding specific drivers of the illicit outflows remain divergent in the literature. This study aims to investigate the effect of financial liberalisation on illicit financial outflows in Africa. Furthermore, the study also examines the effect of macroeconomic stability and institutional quality on illicit outflows. Design/methodology/approach - To achieve the objectives, the study uses a dynamic panel system generalised method of moments technique to analyse annual data from the period 1995 to 2015 of 22 African countries. Findings - The results show that financial liberalisation helps to reduce illicit capital outflows. Furthermore, improved institutional quality is associated with lower levels of capital outflows, thus affirming the theoretical expectations that stable political environment boost investor confidence. Overall, the study show that financial liberalisation reduces illicit outflows. However, liberalisation without sound macroeconomic stability and institutional quality may avail opportunities for illicit outflows. Research limitations/implications - The main limitation of the study was lack of data that spans periods beyond 2015 for most of the variables on financial illicit flows. The available data sources could not test the objectives beyond 2015. Originality/value - Current literature on the relationship between financial liberalisation and illicit fund outflows are generally conducted in the context implications on economic growth. However, beyond economic growth, financial liberalisation may impact on illicit financial outflows. Furthermore, other institutional and macroeconomic dynamics may influence illicit financial outflow, especially for developing economies in Africa.

Suggested Citation

  • Leward Jeke & Clement Zibusiso Moyo & Richard Apau, 2024. "Financial liberalisation and illicit financial outflows in African countries: does institutional quality and macroeconomic stability matter?," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 33(1), pages 1-15, August.
  • Handle: RePEc:eme:jfrcpp:jfrc-06-2023-0078
    DOI: 10.1108/JFRC-06-2023-0078
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    More about this item

    Keywords

    Financial liberalisation; Illicit financial outflows; Institutional quality; Macroeconomic stability; Misinvoicing; F41; F43; G15; O40; O43;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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