draining development.pdf - Khazar University

Policy and Research Implications of Illicit Flows 499of the formal banking system more attractive to the senders and recipientsof remittances: user costs were lowered; time to delivery wasdecreased; and the density of branches in Bangladesh was increased, soas to facilitate access for recipients. As a result, a large share of remittancesmoved into official financial accounts, and the share of GDP originatingin remittances rose from 4 to 8 percent between 2001 and 2006(Hasan 2006; Barua, Majumder, and Akhtaruzzaman 2007).The problems associated with the two sets of flows are quite different.However, if the focus is on development potential, then netting them outcan serve a useful purpose. Even if the Bangladesh remittances enter illegally,as a portion of them still do through the Bangladesh equivalentof hawalas (hundis), they provide resources for development. Indeed,remittances hardly represent tax-evading flows because such a largeshare of the funds go to poor households with minimal tax obligationseven if they declare all relevant income. One needs at least to pay someattention to whether efforts to stop illegal outflows have negative consequencesfor illegal, but beneficial, inflows.A Research AgendaThe research agenda should be diverse both methodologically and interms of the unit of analysis. Beyond the disciplines represented in thisvolume, ethnographic and forensic accounting approaches should beadded. Instead of focusing only on broad aggregates, there should bestudies of the phenomenon in the small as well.The overall goal of the research agenda is to increase understandingof the determinants of the phenomenon and to inform policy discussionof proposals to reduce IFFs. This section will provide a sketch of what isneeded.The existing estimates can serve an important function for futureresearch. If they hold up to further scrutiny, then the national estimatesbecome data. It may be possible to estimate a set of equations that examineboth causes and consequences of IFFs. While the estimates are certainlynoisy, they may not be much different in this respect from measuressuch as Transparency International’s corruption index and theWorld Bank’s various governance indicators that are now the staple ofeconomists’ modeling.