Aspects of late 20th-century globalization—growing international income inequality, the financialization of the economy, the rise of tax havens, increasing rents from exports of energy and mineral resources, and the large international drug economy—have interacted to reshape the political economies of many of the poorest countries and left them particularly vulnerable to the adverse economic and political effects of illicit capital flows. The increasing scope for the illicit expatriation of capital exacerbates problems of corruption, low investment, the unequal sharing of tax burdens across different parts of the private sector, the lack of legitimacy of private enterprise, and relatively authoritarian and exclusionary governance. The international community is already developing a range of interlocking tools to deal with the nexus of problems around illicit capital flows, capital flight, corruption, money laundering, tax avoidance, tax havens, and transfer mispricing. Improvements in the design of these tools and greater vigor in their implementation should have especially beneficial effects within many of the poorest countries, notably, in increasing private investment and economic growth, reducing the popular mistrust of private enterprise, and providing more space for more democratic governance. More effective international action against illicit capital flows would be complementary rather than competitive with attempts to improve from within the quality of public institutions in the poorest countries.
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