Illicit Financial Outflows Through Trade Misinvoicing in Developing Countries: the Influence of Market Concentration

This master’s thesis examines the effect of market concentration on illicit financial outflows in developing countries. It argues that firms are more willing to shift funds illicitly abroad using the channel of trade misinvoicing when the market structure allows them to maintain cozy relationships with government officials. To test this hypothesis, I employ panel data from the Global Financial Integrity, the World Bank, Transparency International, the PRS Group and the KOF Konjunkturforschungsstelle covering 60 countries and the period 2005-2014. The regression results reveal that higher market concentration, higher resource dependence, more development aid and higher external debt stocks significantly increase illicit financial outflows due to misinvoicing in merchandise trade. The analysis does not find significant results for political stability and corruption control. This thesis recommends that governments in developing countries must combat the increasing market dominance of key players in international trade