draining development.pdf - Khazar University

Tax Havens and Illicit Flows 365the difference that allowing for GDP makes: developing countries generallyhave a much lower ratio of portfolio investment to GDP; so, whilesecrecy jurisdictions are responsible for a much higher proportion of theinvestment received (table 11A.4), the secrecy jurisdiction investment asa proportion of GDP (table 11A.5) is much lower in developing countriesthan in high-income countries. As might be expected, the internationalfinancial integration of developing countries is broadly correlatedwith the per capita income levels of these countries. The results in table11A.4 show that the intensity is not significantly different (that is, theshare of secrecy jurisdictions in the existing level of financial integration),but the lower levels of integration mean that the total secrecyjurisdiction exposure through these channels is less.Next stepsSubsequent work should extend these findings in three ways. First,researchers (and research funders) should prioritize the construction ofa consistent data set containing as much information as possible onbilateral trade and financial flows and stocks. Major actors such as theIMF, the Bank for International Settlements, the OECD, and perhapseven the World Bank should aim to emulate, for various financial flows,the trade transparency that the United Nations has achieved. Theabsence of detailed results in this field can largely be blamed on the lackof transparency not of individual jurisdictions, but of the major playersin the economic system. An effort to achieve a greater understandingof the global economy, as well as of the major elements that formillicit flows, calls for an economic transparency initiative of the typebeing pursued by the Task Force for Financial Integrity and EconomicDevelopment. 25This would facilitate more detailed comparisons of this sort, but itwould also help fulfill the second requirement: rigorous econometricwork to establish whether there are, indeed, systematic impacts on developingcountries because of their exposure to secrecy jurisdictions, suchas impacts, in particular, on tax revenues, on economic growth, oninequality, and on governance outcomes. Finally, this work should beextended along the lines argued in this chapter, that is, to include the FSIor equivalently nuanced tools for capturing the relative opacity ofjurisdictions.