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July 24, 2026
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July 24, 2026
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Abstract

Illicit financial flows (IFFs) are widely regarded as a major constraint on development, yet empirical evidence on their direct impact on economic performance remains inconclusive. This study examines the relationship between IFFs and economic growth using an unbalanced panel of 91 developing countries from 2009 to 2018. A static panel framework is employed, with pooled ordinary least squares, random effects, and fixed effects estimators used to benchmark the results. The diagnostic tests favour the fixed effects estimator, allowing the analysis to control for unobserved country specific characteristics that remain constant over time. The findings reveal no statistically significant direct effect of IFFs on economic growth across all specifications. Although theory predicts a negative association, the estimates are imprecise and vary in sign, suggesting that within country changes in IFFs do not exert a measurable impact on growth during the sample period. In contrast, several control variables display robust and theoretically consistent effects. Capital formation and trade openness are positively associated with growth, while population growth exhibits a strong negative association. Human capital yields negative coefficients across estimators, indicating structural constraints that weaken the productivity benefits of educational expansion. These results contribute to the literature by providing updated evidence from a large multi region sample and by demonstrating that IFFs may influence development through indirect or lagged channels rather than through contemporaneous effects on growth. The study underscores the importance of sustained investment, demographic transition, and improvements in educational quality, while reaffirming the relevance of anti IFF measures based on their broader governance and fiscal consequences. Future research may explore non linear specifications and dynamic transmission mechanisms to capture pathways not identified in static models.

Keywords

Illicit Financial Flows Economic Growth Developing Economies Fixed Effects Capital Flight Trade Misinvoicing

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Copyright (c) 2026 Ahmad Shahnun Ibrahim, Muzafar Shah Habibullah; Nurulashikin Romli; Wan Zarifah Hasan

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This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Author Biographies

Ahmad Shahnun Ibrahim, University of Putra Malaysia

Ahmad Shahnun Ibrahim is a Lecturer at the Faculty of Technology, Design and Management, UCYP University, Kuantan, Pahang. Tel.: +60-19-4100692. E-mail: [email protected]

Muzafar Shah Habibullah, University of Putra Malaysia

Muzafar Shah Habibullah is a Research Professor at Putra Business School (PBS), Universiti Putra Malaysia. Tel.: +60-12-2143451. E-mail: [email protected]

Nurulashikin Romli, Universiti Teknologi MARA

Nurulashikin Romli is a Senior Lecturer at the Faculty of Business and Management, Universiti Teknologi MARA (UiTM) Cawangan Johor, Kampus Segamat. Tel.: +60-19-2970663. E-mail: [email protected]

Wan Zarifah Hasan

Wan Zarifah Hasan is the Head of Program (PhD Management) at the PostGraduate School at UCYP University, Kuantan, Pahang. Tel.: +60-19-2016520. E-mail: [email protected]

How to Cite
Analyzing the Influence of Illicit Financial Flows on Economic Growth: A Static Panel Approach. (2026). Asian Social Science and Humanities Research Journal (ASHREJ), 7(2), 1-16. https://doi.org/10.37698/xrfrhc41
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How to Cite

Analyzing the Influence of Illicit Financial Flows on Economic Growth: A Static Panel Approach. (2026). Asian Social Science and Humanities Research Journal (ASHREJ), 7(2), 1-16. https://doi.org/10.37698/xrfrhc41

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