draining development.pdf - Khazar University

494 Draining Development?citizen who received most of her revenues in the United States fromother Chinese immigrants (families of her customers), who had earnedthe money in the United States. She spent some of the money in herhome village in China; many of her agents spent their money exclusivelyin the United States.However, even for these markets, it is not clear that there is any substantialoutflow from the source countries of funds from activities thatare properly included in domestic GDP. The Netherland income from theprostitution of a coerced Moldovan woman, if it is included in any GDP,is counted in the country in which it becomes income, the Netherlands. 14The money may be repatriated to the source country by the prostitute orby the smuggler. 15 There is a loss of human capital and associated earningsas a result of human trafficking, but the people who are smuggledare generally in the lower quantiles of earnings in their own nations; theloss may be minor relative to the loss of human capital associated with,for example, the admission under various U.S. immigration programs ofmedical physicians and skilled technology workers trained abroad.Raymond Baker (2005) identifies other illegal markets that make substantialcontributions to the illicit flows from developing and transitionaleconomies: counterfeit goods, smuggling, and racketeering. Theonly method of determining the actual outflows of these markets wouldbe to examine the dynamics of each market separately. It is easy to arguethat there are substantial illicit inflows associated with, at least, counterfeitgoods. These are often exports from developing countries thatundercut products bearing the same name that are made in a variety ofcountries. The net effects on any individual country depend on variouselasticities of substitution about which prior speculation is essentiallyimpossible. Smuggling, while it certainly deprives governments of legitimaterevenues, may involve net inflows to developing countries if thesmuggling occurs from poorer countries to richer countries.Existing EstimatesThe debate about IFFs has been dominated by reference to estimates ofthe large scale of the phenomenon that are associated with Global FinancialIntegrity (Baker 2005; Kar and Cartwright-Smith 2008). These estimates,which are apparently the only ones to date, have been extremely