draining development.pdf - Khazar University

364 Draining Development?The second broad result is that developing countries in general aremore exposed to (more reliant on) secrecy jurisdictions in portfolioinvestment stocks. East and South Asia are especially exposed, reflectingthe regional location of particular secrecy jurisdictions (for example,Hong Kong SAR, China; Singapore). To take an arbitrary example, theU.K. Crown Dependency of Jersey was responsible, in 2007, for morethan 30 percent of the declared portfolio investment in six countries:Algeria, Guinea, and the Syrian Arab Republic (between one-third andone-half of declared investment), and Djibouti, Libya, and Turkmenistan(99.5 percent or more).Third, the picture is somewhat more mixed if bank claims are considered.With respect to the narrow secrecy jurisdiction list, this is theone set of results in which high-income OECD countries are notablymore exposed than each developing country group. On the broadsecrecy jurisdiction list, however, developing countries are a little moreexposed, particularly countries in South Asia and Sub-Saharan Africa.An arbitrary example: more than 20 percent of the revealed foreignclaims of Eritrea and neighboring Ethiopia at the end of 2008 wereagainst banks in one country, Switzerland. However, this may be theresult of a Swiss bank operating out of, for example, Addis Ababa andtaking deposits. The available data do not allow us any certainty aboutthe locational aspects.Table 11A.5 presents the results on a different basis: the implied percentageof GDP. 24 We use additional data on economic aggregates andthen extrapolate on the assumption that the shares of bilaterally reportedtrade (or other flows and stocks) that are associated with secrecy jurisdictionsare equal to the shares of these jurisdictions in total trade (orother measures). This may be somewhat heroic, and it would clearly bepreferable to have full data available. Nonetheless, for this exercise, whichinvolves making broad comparisons across different country groups,there seems no particular reason to expect that our method would introducea systematic distortion.The main results are twofold. First, the trade exposure of developingcountries to secrecy jurisdictions relative to the total size of the economiesof these countries is notably greater than that of the high-incomeOECD countries. Second, the reverse pattern holds with regard to portfolioinvestment and foreign bank claims. It is important to understand