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Impact of economic and financial crimes on economic growth in emerging and
developing countries A systematic review
Article in Journal of Financial Crime · October 2019
DOI: 10.1108/JFC-10-2018-0112
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JFC
26,3
910
Impact of economic and
financial crimes on economic
growth in emerging and
developing countries
A systematic review
Sani Abubakar Saddiq
Department of General Studies, Abubakar Tatari Ali Polytechnic, Bauchi, Nigeria, and
Abu Sufian Abu Bakar
School of Economics, Finance and Banking,
Universiti Utara Malaysia, Sintok, Malaysia
Abstract
Purpose – The purpose of the study is to investigate the impact of economic and financial crimes on the
economies of emerging and developing countries.
Design/methodology/approach – Preferred Reporting Items for Systematic review and Meta-Analysis
(PRISMA) guidelines and meta-analysis of economics research reporting guidelines were used to conduct a
quantitative synthesis of empirical evidence on the impact of economic and financial crimes in developing and
emerging countries.
Findings – A total of 103 studies were searched, out of which 6 met the selection/eligibility criteria of this
systematic review. The six selected studies indicated that economic and financial crimes have a negative
impact in emerging and developing countries.
Originality/value – To the best knowledge of the authors, no published systematic review of the impact of
economic and financial crimes in developing countries has been conducted to date.
Keywords Impact, Systematic review, Economic and financial crimes,
Emerging and developing countries
Paper type Literature review
Journal of Financial Crime
Vol. 26 No. 3, 2019
pp. 910-920
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-10-2018-0112
Background
Past studies conducted reveal that economic and financial crimes have continued to increase
despite tough policy measures put in place in both developed and developing countries. For
instance, it was estimated that $1.5 trillion to $2 trillion (or around 2 per cent of global gross
domestic product [GDP]) in bribes are paid annually in both developing and developed
countries (Lagarde, 2016). It was estimated that illicit financial flows (IFFs) from developing
and emerging economies stood at nearly US$1 trillion in 2014 (Global Financial Integrity,
2017). Developing countries are at high risk of incidences of economic and financial crimes.
For example, the poor in developing countries pay as high as 6.4 to 12.6 per cent of their
incomes in bribe (World Bank Group, 2017). In Nigeria, a survey conducted in 2017 reveals
that 95 per cent of Nigerians indulge in bribery (National Bureau for Statistics, 2017).
Similarly, research studies conducted by various scholars, institutions, authorities and
organizations have consistently revealed negative impact of economic and financial crimes
on economic growth and development across the globe. For example, it was found that
developed countries did not have a monopoly on economic and financial crimes. Developing
countries also had their share of such criminal activities, which constituted major obstacles
to political and social stability and to economic progress (Aquino, 2005). Economic and
financial crimes have been one of the most serious threats for the security and stability of
nations, regions and the world. The crimes were growing at an alarming rate and were
linked to the growing integration of the world economy (Bertrand, 2005). Economic and
financial crimes such as corruption was declared public enemy number one in developing
countries (Kim, 2013). Corruption in particular is considered a major challenge to twin goals
of ending extreme poverty by 2030 and boosting shared prosperity for the poorest 40 per
cent of people in developing countries. This means that corruption has negative impact on
the poor and on economic growth (World Bank Group, 2017).
The main problem associated with economic and financial crimes is the seemly
unsolvable nature of these crimes. Various theoretical works were put forward to explain
causes, types, characteristics and impact of economic and financial crimes. For example, an
economic crime such as corruption is a product of individual and structural variables that
interact to produce both positive and negative consequences; corruption, as a process,
influences the optimal level of social welfare; this theory posits that if the level of corruption
is high in country be it developed or underdeveloped, the level of its economic growth will be
low (Nas et al., 1986). It was postulated that economic crime is an illegal act perpetrated by
an individual or group of individuals purposively for financial gain (Chamlin and Kennedy,
1991) and (Freeman, 1996). These theories are of the assumption that offenders motive in
committing economic crime can be observed. Similarly, Savelsberg (1987) and Baldry (1995)
theorized that economic crimes are illegal acts that successfully offer the offenders economic
returns (outcomes) while the victims incur economic cost. The outcomes could be financial
or professional advantage, while the victims can be an individual, group of individuals or
the society as a whole. When these theoretical works are applied to occurrences of economic
and financial crimes in the world, this paper assumes that these criminal activities have
profound negative impacts especially in developing countries.
This systematic review is conducted to examine the following research questions:
What are the impacts of economic and financial crimes such as corruption on economic
growth of emerging and developing countries? What factors influence an individual or
group of individuals to commit economic and financial crimes in emerging and developing
countries? What are the policy measures put in place to tackle economic and financial crimes
in emerging and developing countries?
Vast majority of empirical analyses also reveals a negative relationship between economic
crime such as corruption and economic growth in emerging and developing countries
ranging from siphoning limited resources to worsening poverty (Waziri, 2010). Economic
crime is defined as that group of offences frequently committed in conjunction with
legitimate economic activities and largely by perpetrators who enjoy considerable amount of
respect in the communities (Caric, 2005). However, to the best knowledge of authors of this a
systematic review of the impact of economic and financial crimes on developing countries
has not been conducted. This study conducted a systematic review of the impact of economic
and financial crimes in developing countries such as East Asia and Pacific (EAP), Middle
East, Africa, Latin America, Caribbean (LAC), East Europe and Central Asia.
Methods
To conduct a quantitative synthesis of empirical evidence on the impact of economic and
financial crimes in developing and emerging countries, this systematic review will be conducted
Impact of
economic and
financial
crimes
911
JFC
26,3
912
according to the Preferred Reporting Items for Systematic review and Meta-Analysis (PRISMA)
guidelines (Moher et al., 2009) as well as meta-analysis of economics research reporting (MRA)
guidelines (Stanley et al., 2013). PRISMA is a term used to refer to combination of systematic
review and meta-analysis. A systematic review is a review of a clearly formulated question that
uses systematic and explicit methods to identify, select and critically appraise relevant research,
and to collect and analyze data from the studies that are included in the review. Meta-analysis
refers to the use of statistical techniques in a systematic review to integrate the results of included
studies (Nas et al., 1986). MRA is the systematic review and quantitative synthesis of empirical
economic evidence on a given hypothesis, phenomenon or effect. MRA is a type of meta-analysis
that is explicitly designed to integrate econometric estimates, typically regression coefficients or
transformations of regression coefficients (Stanley et al., 2013).
Selection/inclusion criteria
In this review only quantitative studies were selected for meta-analysis. The study adopted
the following eligibility criteria. First, research studies had to focus on the impact of any
type of economic and financial crimes in emerging and developing countries. Studies that
focused on the impact of economic and financial crimes in developed countries were
excluded. Second, research studies had to focus on non-violent economic and financial
crimes such as corruption, money laundering, etc. Studies that focused on violent economic
crimes such as armed robbery and drug trafficking were excluded. Finally, studies had to
focus on policy measures that should be put in place in developing and emerging countries
aimed at tackling economic and financial crimes. Studies that do not focus on policy
measures aimed at tackling economic and financial crimes were excluded.
Search strategy
This systematic review conducted in-depth search in United Nations (UN) database, World
Bank database, International Monetary Fund (IMF) database, Transparency International
database, Human Rights Watch Reports, African Union (AU) Reports, Google Scholar,
online papers, books, dissertations, theses and journal articles from 2000 to 2017. The study
used four concepts as search strategy, namely:
(1) economic crimes;
(2) financial crimes;
(3) developing countries; and
(4) emerging countries.
Results
In this paper, 103 studies were searched in a thorough review of literature on economic and
financial crimes in emerging and developing countries (Figure 1). Out of the 103, 74 studies
were excluded as a result of duplications, 18 studies were not included because they did not
fulfil the aim of this meta-analysis and 5 studies did not meet eligibility criteria. Only six
studies were included in the meta-analysis.
Study characteristics
In this systematic review, included studies were published from 2007 through 2017. Data
were obtained from the Economic Community of West African States (ECOWAS;
Impact of
economic and
financial
crimes
Additional studies
identified through
other
sources
(n = 2)
Studies identified
through database
searching (n = 101)
913
Studies after duplicates were removed (n = 29)
Studies
screened
(n = 29)
Studies
excluded
(n = 18)
Studies assessed
for
eligibility
(n = 11)
Studies excluded
with reasons (n = 5)
-
-
No
sampling
design
(n = 2)
No sample
size (n = 2)
Studied
both
developed
and
developing
countries
(n = 1)
Studies included in
the meta-analysis
(n = 6)
Abu, 2015), Sierra Leone (Global Financial Integrity, 2017), Ghana (Ocansey, 2017), Nigeria
(Ogbuagu et al., 2014), Malaysia (Sanusi et al., 2016) and 41 developing countries (Table I).
Meta-analysis of the included studies
In this systematic review, meta-analysis will be calculated using the Ellis (2010) formula.
The formula is written as:
P
Nð r Þ
P
(1)
N
where
Figure 1.
PRISMA flow chart
diagram describing
selection of studies
for systematic review
and meta-analysis on
the impact of
economic and
financial in emerging
and developing
countries
Systematic sampling
Sampling type
N = 15
Sample
size
Corruption
Country
Journal
article
(continued)
Quantitative
Stratified sampling
N=2
Corruption
Nigeria
Descriptive and
Simple Correlation
analysis
Results: The study discovered from the simple correlation analysis that it is not absolute lack of funds that has caused infrastructural decay but outright
mismanagement of funds (corruption) that is principally responsible for the level of infrastructural decay in Nigeria. It was recommended that there should be
promotion and institutionalization of good governance, long-term infrastructural planning and public–private partnership in the provision of infrastructures
Ogbuagu
et al.
(2014)
Ocansey
Journal
Survey
Random sampling
N = 66
Economic and
Ghana
(2017)
article
financial crimes
Results: Economic and financial crimes have plagued every corner of the economies of the world. These crimes affect all firms and the economies of nations.
Economic and financial crime such as fraud is usually perpetrated when there is pressure from many situations, a high opportunity is perceived and there is low
integrity. It was recommended that all institutions (anti-corruption agencies and companies) should establish forensic accounting unit to help strengthen internal
controls and ensure thorough investigation to prevent, deter and detect financial and economic crimes
Kanu
Journal
Qualitative and
Stratified random sampling
N = 340 Corruption
Sierra Leone
(2015)
article
quantitative
Results: Corruption is one of the factors hindering the development of SMEs in Sierra Leone. The study shows that corruption has a significant negative
association with growth, productivity and employment. Corruption as it affects SMEs in Sierra Leone is owing to the liability of size, short-term vision and
perspective, restricted financial resources, failure to exercise a strong influence on government officials and institutions, capital structure and the inability to shun
it. The study recommended that the national Government of Sierra Leone should take a giant step to curb corruption within the SME sector so that these
enterprises can contribute meaningfully to the economic development of the country
Quantitative
Research design
Economic Community
of West African
Countries (ECOWAAS)
Results: ECOWAS countries are facing serious corruption problem. Corruption has a negative impact on saving in the region. Corruption is caused by low
income levels in the region. Corruption can be reduced through increases in income, higher wages and establishment of efficient legal system and anti-grant
agencies to facilitate the arrest and prosecution of offenders
Thesis
Abu
(2015)
Table I.
Features of studies
included in this
systematic review
Publication
type
914
Author(s)
and year
Type of
economic and
financial crime
studied
JFC
26,3
Publication
type
Research design
Sampling type
Sample
size
Country
Shabbir
Journal
Quantitative
Random sampling
N = 41
corruption
41 developing countries
and
article
correlation
Anwar
(2007)
Results: Corruption is found to be “a limp in the walk of human progress.” It is caused by economic and non-economic factors. It is recommended that
governments of developing countries focus on the economic determinants of corruption, especially the policy of economic freedom (free-market economy) to
control the perceived level of corruption. The policy of globalization must be supported because it has significantly contributed in reducing the level of public
corruption. The government should also focus on distributive and social justice during the course of economic development. The policy of press liberalization
must be fully supported to reduce the perceived level of corruption
Sanusi
Journal
Quantitative
Companies listed under the “Status of Cases
N = 80
Money
Malaysia
et al.
article
Cross tabulation
Investigated” section on the Bank Negara Malaysia
laundering
(2016)
website from the years of 2006 to 2014
Results: Economic and financial crime such as money laundering has a serious negative impact on the economy of Malaysia, and it is largely caused by
loopholes in the laws alongside with a lack of awareness of the relevant legal institutions in the battle against money laundering. Anti-Money Laundering and
Terrorist Financing Act (AMLATFA) was enacted in 2001 to tackle the menace of money laundering in Malaysia
Author(s)
and year
Type of
economic and
financial crime
studied
Impact of
economic and
financial
crimes
915
Table I.
JFC
26,3
916
N = sample size;
r = effect size estimate expressed in the correlational metric; and
p = p value or statistical significance of each study’s result.
The following studies satisfied the inclusion criteria of this systematic review and are
selected for simple meta-analysis:
Study (Abu, 2015) N = 15, r = 0.79 and p = 0.0002
Study (Kanu, 2015) N = 340, r = -0.438 and p = 0.008
Study (Ocansey, 2017) N = 66, r = 0.77 and p< 0.05
Study (Ogbuagu et al., 2014) N = 2, r = 0.72 and p = 0.0007
Study (Sanusi et al., 2016) N = 80, r = 7.06 and p = 0.008
Study (Shabbir and Anwar, 2007) N = 41, r = 0.50 and p < 0.07
It should be noted that five studies have positive results (0.79, 0.77, 0.72, 7.06 and 0.50) and
one has negative result (0.438). This means that five studies indicated positive effect while
only one indicated negative effect. As the main aim of this systematic review is to calculate a
weighted mean estimate of the effect size (outcome or result) of economic and financial
crimes in emerging and developing countries each of the selected study’s r’s will be
weighted by their respective sample sizes. Note that P values cannot be used to estimate
common effect size; therefore, they will be ignored (Ellis, 2010).
The weighted mean effect size of the above selected studies is thus calculated as follows:
ð15 0:79Þ þ ð340 x 0:438Þ þ ð66 0:77Þ þ ð2 0:72Þ þ ð80 7:06Þ þ ð41 0:50Þ
15 þ 340 þ 66 þ 2 þ 80 þ 41
¼
11:85 – 148:92 þ 50:82 þ 1:28 þ 72:94 þ 20:5
15 þ 340 þ 66 þ 2 þ 80 þ 41
¼
8:47
544
¼ 0:016
The result above indicates that the sample effect is positive in direction but small in size.
Standard error
In this study, standard error is to be used to measure or estimate standard deviation of
sampling distribution associated with an estimation method. Standard error is calculated to
estimate confidence interval of 95 per cent. This is an interval that shows the margin of error
around a result or what is roughly estimated.
Standard error formula:
s
SEx ¼ p
(2)
n
where
SEx
= standard error of the mean;
s = standard deviation of the mean; and
n = number of observations of the sample.
Impact of
economic and
financial
crimes
Standard error mean:
X = 2, 15, 41, 66, 80 and 340
Total inputs (N) = (2, 15, 41, 66, 80, 340)
Total inputs (N) = 6
To calculate mean:
Mean ðXm Þ ¼
Mean ðXm Þ ¼
ðx1 þ x2 þ x3 . . . xn Þ
N
(3)
2 þ 15 þ 41 þ 66 þ 80 þ 340
6
Mean ðXm Þ ¼
544
6
Mean ðXm Þ ¼ 90:67
To calculate standard deviation:
p
SD ¼
1=ðN 1Þ* ðx1 xm Þ2 þ ðx2 xm Þ2 þ :: þ ðxn xm Þ2
¼
p
(4)
2
2
2
2
ð
Þ
1= 6 1 ð2 90:67Þ þ ð15 90:67Þ þ ð41 90:67Þ þ ð66 90:67Þ
2
2
þð80 90:67Þ þ ð340 – 90:67Þ ÞÞ
¼
p
¼
2
2
2
2
2
2
1=5 ð88:67Þ þ ð75:67Þ þ ð49:67Þ þ ð24:67Þ þ ð10:67Þ þ ð249:33Þ
p
1=5 ð7; 862:3689Þ þ ð5; 725:9489Þ þ ð2; 467:1089Þ þ ð608:6089Þ þ ð139:8489Þ
þð62; 165:4489ÞÞÞ
¼
p
1=5ðð78; 969:3334ÞÞ
p
¼ ð15; 793:86668Þ
¼ 125:674
To calculate standard error:
p
ðNÞ
p
Standard Error ¼ 125:67365= ð6Þ
Standard Error ¼ SD=
Standard Error ¼ 125:6737=2:4495
Standard Error ¼ 51:3059
(5)
917
JFC
26,3
918
Study findings
Table I presents the characteristics of the included studies. These include author(s)
name, year of publication, types of study, research design, sampling type, sample size,
type of economic and financial crime studied, country studied and the result of the
study. The sample size ranges from 2 to 340. All the studies point to the fact economic
and financial crime such as corruption have had a negative impact on all the facets of
the economies of emerging and developing countries. However, based on the result of
meta-analysis of the included studies (0.016 though small but positive), indicates that
economic and financial crimes do not decrease economic growth. As these crimes
increases, economic growth increases even though moderately in emerging and
developing countries.
The result of the standard deviation (125.674) and standard error (51.3059) at 95 per
cent confidence interval shows that they are quite different but related to the mean
(90.67). The standard error indicates the reliability of the mean. This means that the
study’s mean effect is statistically significant due to large sample size (544). This is also
an indication that the result or outcome is not by chance, that is there is a moderate
positive relationship between economic growth and economic and financial crimes in
emerging and developing countries.
Discussion
This systematic review is a further demonstration of the incidences of economic and
financial crimes in emerging and developing countries. It shows that these crimes are high
and on the increase in emerging and developing countries despite tough policy measures put
in place by the various governments in these countries. Africa in particular has the highest
incidences of economic and financial crimes included in this study (Abu, 2015; kanu, 2015;
Ocansey, 2017), and (Ogbuagu et al., 2014). One study (Sanusi et al., 2016) revealed incidence
of money laundering in Malaysia.
According to the World Bank (World Bank Group, 2017), economic crime such as
corruption is a major challenge to its twin goals of ending extreme poverty by 2030 and
boosting shared prosperity for the poorest 40 per cent of people in developing countries.
Similarly, according to this systematic review corruption is the major public problem in
developing countries (Shabbir and Anwar, 2007). The meta-analysis conducted by this
study revealed a moderate positive impact of economic and financial crimes in emerging
and developing countries. This outcome is in contrast to the findings of the included
studies.
All the included studies recommended the use of economic, legal, social and political
measures as well as partnership with international institutions in tackling the menace of
economic and financial crimes in emerging and developing countries.
Conclusion
In conclusion, this study attempted to shed more light on the incidences of economic and
financial crimes in emerging and developing countries. The meta-analysis conducted
indicated a moderate positive impact of economic and financial crimes in emerging and
developing countries. Despite this indication, adequate intervention should be designed by
policymakers, private sector managers, international partners and researchers to reduce
these crimes to the barest minimum. Further studies should be conducted to accurately
determine the negative impact of economic and financial crimes in emerging and developing
countries.
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Corresponding author
Sani Abubakar Saddiq can be contacted at: saddiqsaniabubakar@yahoo.com
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