Working Paper
Illicit financial flows and the Global South

Illicit financial flows (IFFs) constitute a major challenge for development in the Global South, as domestic resource mobilization is imperative for providing crucial public services.

While several methods offer to measure the extent of IFFs, each has its benefits and drawbacks. Critically, methods based on the balance of payments identity may capture licit as well as illicit flows, and a method based on macroeconomic trade discrepancies suffers from doubtful assumptions.

The most convincing estimate to date demonstrates that individuals hold financial assets worth around ten per cent of global GDP in tax havens. Evidence further indicates that countries in the Global South are more exposed to individuals and multinational enterprises illicitly transferring money out of the country.

Further research is warranted on profit shifting out of countries in the Global South and the effectiveness of anti-IFF policies in countries outside Europe and the United States.