This paper aims to empirically explore the effects of globalization, corruption perception, political stability, macroeconomic vulnerability and gross domestic savings on illicit financial outflows of 60 developing countries from 2004 to 2013.
Pedroni’s heterogeneous panel data methodology for co-integration is applied. Panel unit root tests reveal non-stationarity of each variable in level, and a battery of seven panel co-integration tests largely confirm long-run equilibrium relationship among the variables under study.
The panel vector error correction model estimates show that variables tend to converge toward long-run equilibrium at a very slow pace amid some short-term random fluctuations. At the same time, political stability reduces illicit financial outflows.
There are enhancing impacts of globalization, corruption perception, macroeconomic vulnerability and domestic gross savings on illicit financial outflows. Political stability dampens such outflows. To the authors’ knowledge, such studies are either very scant or non-existent.
