Impact of illicit financial flows on infant vaccination coverage in developing countries.

Abstract

Objectives This paper analysed the impact of illicit financial flows (IFFs) on the infant immunisation coverage rate as a first step in analysing the social costs of IFFs in developing countries. Background The liberalization of capital flows is generally associated with prospects of higher growth. However, in developing countries, opening the capital account may also facilitate the flow of capital out of the country through illicit financial flows (IFFs). Since 1980, developing countries have lost US$16.3 trillion dollars through broad leakages in the balance of payments, trade misinvoicing, and unrecorded financial transfers. Moreover, according to the Global Financial Integrity (GFI), illicit flows from the developing world increased steadily to reach US$1.1 trillion in 2013. Given that IFFs drain the scarce public resources available to finance the provision of public goods and services, the extent of illicit capital flows from developing countries is serious cause for concern. Data/Methods Data for 56 low- and middle-income countries for the period 2002-2013 have been employed. All data are open access (from GFI, World Health Organization and World Bank). Also, in order to analyse the impact of the relative size of IFFs on child vaccination coverage, as a baseline specification, a dynamic panel data model has been employed. Results/Expected Results The main result of the empirical analysis is that, as expected, the relative level of illicit financial flows negatively impacts vaccination coverage in the sample of countries considered. Specifically, the total effect of a year increase of 1 p.p. in the ratio of IFF to total trade is to reduce the level of vaccination coverage rate over the coming years by 0.1 p.p. Taking into account that the average annual number of infants in the countries analysed, over the sample period, was approximately 65.3 million, this result suggests that at least 65,300 children may not receive this basic health care intervention in the future as a consequence of the increase in the ratio of IFF to total trade in a particular year. Policy Implications The findings of this study offered evidence showing that, in developing countries, the existence of both sufficiently strong and stable financial institutions and an efficient legal system might be crucial in order to prevent the long-run negative effects of capital flows on the health conditions of populations.