23 April 2010

Beyond Aid – Going after corruption

Owen Barder has written a great post on the difference between aid and development policy – between providing temporary alleviation from the worst effects of poverty, and supporting structural transformation.

Aid is best-suited to poverty alleviation, and other “beyond aid” policies such as trade, security and migration are more suited to transformational development.

Hilary Myers mentioned one of these “beyond-aid” issues on this blog: cracking down on tax havens, improving transparency and tackling corruption – particularly by making it harder for western banks and financial institutions to facilitate that corruption.

How important are these illicit financial flows out of developing countries? Derrill Watson draws my attention to these figures from the Global Financial Integrity Programme of the Center for International Policy.


Quite important.


Matt said...

Didn't that same study maintain that most of these illicet flows are private, not public?

If they are private, will cracking down on them make a big difference for development? A large outflow of private funds indicates a lack of faith in the reliability domestic investment (for example, most Asian communities in East Africa aren't considered full citizens, so they have little incentive to put any long term investment in the country). Surely we should address the more basic incentives, rather than trying to place wack-a-mole on financial outflows?

Lee said...

Absolutely, my point is more about the sheer magnitude. Taxing a small fraction of that could yield massive revenues for developing country governments.

Why not have a law in the UK requiring private inflows above a certain amount to show proof that they have adhered to sending country law?

Matt said...

Because the private inflows would just shift elsewhere - the problem is with the incentive to invest private cash in the original country. That's not addressed by disincentives to sent to specific countries. Developing countries need to do more to convince these people that it's worth keeping their money at home.

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