draining development.pdf - Khazar University

Governance and Illicit Flows 53Table 2.1. Logical Framework for Identifying Illicit Flows from Developing CountriesNet effect on growth(including indirect effects)Net effect negative(flow is illicit even if legal)Net effect positive orneutral(flow is not illicit even ifillegal)Direct effect on growthDirect effect negative(flow can be legal)Examples: Capital outflows toevade/avoid legitimate taxesEvasion of restrictions that supportan effective industrial policyFinancial outflows of political actorsin the presence of live-and-let-liveagreementsExamples: Financial outflows ofpolitical actors in the absence ofinformal agreements restrictingexpropriationDirect effect positive or neutral(flow can be illegal)Examples: Financial flows associatedwith the production of drugs andnarcoticsExamples: Unauthorized paymentsto overseas agencies to provide jobsthat are better than domesticopportunities (Bangladesh)Recycling that bypasses criticalmarket failures in developing economiesand increases investment bydomestic investors in their owncountryOutflows from countries in whichprofitability is low because ofabsent industrial policy or presenceof damaging policies such as pro tectionfor domestic monopoliesSource: Author compilation.developing-country case if the aim is to identify financial flows that needto be blocked to make the developing country more well off. In any particularcountry, many financial flows may be simultaneously driven bydifferent underlying causes. The judgment that has to be made involvesidentifying the drivers of the most significant financial flows and assessingwhether these are damaging in the context of the specific politicalsettlement.Developing countries in crisis: The fragile developersFragile developing countries are ones in which the internal political settlementis close to collapsing or has collapsed, and political factions areengaged in violent conflict. This group includes, for example, Afghanistan,the Democratic Republic of Congo, and Somalia. It also includes anumber of other developing countries in North and Sub-Saharan Africa,