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July 24, 2026
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July 27, 2026
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Abstract

Illicit financial flows (IFFs) are increasingly cited as a constraint on social and institutional development, yet empirical evidence on their direct association with subjective well-being remains limited. Using an unbalanced panel of 86 developing countries from 2009 to 2018, this study examines whether IFFs exert a measurable influence on national happiness levels. Static estimators including pooled ordinary least squares, random effects, and fixed effects establish baseline relationships, while dynamic specifications incorporating a lagged dependent variable assess persistence in well-being outcomes. Across all static and dynamic models, IFFs do not have a statistically significant direct effect on happiness. The estimated coefficients are small and unstable in sign, indicating that short-term movements in illicit outflows do not translate into contemporaneous changes in subjective well-being. The dynamic specifications reveal substantial persistence in happiness, with large and significant lagged dependent variable coefficients, suggesting that well-being is partly shaped by prior happiness levels. By contrast, several structural determinants exhibit consistent relationships. Income demonstrates a positive association with happiness, while unemployment is negatively related to well-being across all estimators. Institutional quality is positively associated with happiness in the fixed effects model, suggesting that governance conditions contribute to higher life evaluations. Inflation exhibits a small negative association in the fixed effects specification. Income inequality, education, and internet penetration do not show significant effects across models. Overall, the findings suggest that IFFs may influence societal well-being through indirect or longer-term channels rather than immediate changes in happiness. The study contributes updated evidence from developing countries and highlights the importance of economic stability, employment conditions, and institutional performance in shaping well-being. Future research employing System GMM, mediation analysis, and non-linear specifications may better capture the channels through which IFFs affect happiness.

Keywords

Illicit Financial Flows Happiness Subjective Well-Being Developing Economies Panel Data Analysis 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, UCYP University

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
Illicit Financial Flows and Happiness in Developing Economies: A Static Panel Data Analysis. (2026). Asian Social Science and Humanities Research Journal (ASHREJ), 7(2), 17-35. https://doi.org/10.37698/d71zhp77
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How to Cite

Illicit Financial Flows and Happiness in Developing Economies: A Static Panel Data Analysis. (2026). Asian Social Science and Humanities Research Journal (ASHREJ), 7(2), 17-35. https://doi.org/10.37698/d71zhp77

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