Does money laundering determine the direction of FDI?

• Název práce v češtině: Does money laundering determine the direction of FDI?
• Název v anglickém jazyce: Does money laundering determine the direction of FDI?
• Klíčová slova anglicky: Money Laundering, Foreign Direct Investment, Gravity Model, Panel Data, Fixed Effects, Random Effects, OLS
• Akademický rok vypsání: 2016/2017
• Typ práce: bakalářská práce
• Jazyk práce: angličtina
• Ústav: Institut ekonomických studií (23-IES)
• Vedoucí / školitel: Mgr. Michal Paulus
• Řešitel: skrytý - zadáno vedoucím/školitelem
• Datum přihlášení: 16.05.2017
• Datum zadání: 16.05.2017
• Datum a čas obhajoby: 10.09.2018 09:00
• Místo konání obhajoby: Opletalova - Opletalova 26, O206, Opletalova - místn. č. 206
• Datum odevzdání elektronické podoby: 19.07.2018
• Datum proběhlé obhajoby: 10.09.2018
• Oponenti: doc. Petr Janský, M.Sc., Ph.D.

Zásady pro vypracování

Research question and motivation
Money laundering, the concealment of the origins of illegally obtained money by various means of transfers, is considered a global threat to free market economies. Such highly complicated process with a substantial effect on the international financial system has shown to be challenging in estimation and effective in camouflage. Previous studies and academic papers from Walker (1999), Unger (2007) or Schneider (2015) focus on quantification and estimation of the volume of ‘laundered money’ through suspicious cash transactions, crime proceedings or number of prosecutions but their results appear with large margin of error.
This thesis aims to answer whether foreign direct investments remain an existing route for illicit flows and money laundering. It observes if the effect of particular countries officially known as money-laundering centers is significant to FDI outflows in specific OECD country members. Countries which are part of an international anti-bribery and anti-money laundering policy making organization, are chosen explicitly because past studies seem to treat this issue only for samples taken from economic or political regions.
For instance, Perez, Brada and Drabek (2012) do find a relationship between the distribution of FDI and money laundering but the analysis of countries is restricted to only Central and Eastern European economies. However, their research indicates strong evidence that investigating the distribution of FDI outflows may lead to an empirical result which shows that money laundering might be indeed a motive for large odd flows of investment.

Contribution
If the proposed research is succesful, the thesis´ contribution may be an empirical set of results for a specific sample of OECD country members. In my opinion, it is of great importance to arrive at a conclusion for these countries which are also part of FATF, a “policy- making body“ that combats money laundering and other threats to the international financial system.

Methodology
Using data regarding foreign direct investment from the Central Banks of each OECD country, geographical distances, GDP, tax rates, membership in EU etc. , I will run a so-called Gravity model with a dependent variable (FDI flows) which aims to explain the flow of investment between the countries I am analysing and host countries. In order to estimate the effect of ‘being a money-laundering center´ an enriched model will be constructed with new independent variables and an empirical analysis will be conducted. I expect to build my research on panel data so econometric tests based on pooled OLS, Fixed Effects or the Random Effects model will be likely used to accomplish the purpose of this study.


Outline
Introduction
Literature Review
Methodology and data
Results
Discussion
Conclusion

Seznam odborné literatury

1. Folfas P, FDI between EU member states : Gravity model and taxes, Warsaw School of Economics,Institute of International Economics.
2. Alfaro, Laura, Kalemli-Ozcan, Sebnem, Volosovych, Vadym, 2008. Why doesn’t capital flow from rich to poor countries? An empirical investigation. The Review of Economics and Statistics 90
3. Anderson, James E., 1979. A theoretical foundation for the gravity equation. American Economic Review 69, No. 1
4. Fabricio Perez M. , Brada Josef C. , Drabek Z , Illicit money flows as motives for FDI, Journal of Comparative Economics 40 (2012) 108–126.
5. Mihu S. 2012, Tax Havens and the Money Laundering Phenomenon, Journal of Academic Research in Economics,
6. Cuervo-Cazurra A. , 2008. Better the devil you don`t : Types of corruption and FDI in transition economies. Journal of International Management 14, 12–27.
7. McDowell J. 2001, The Fight Against Money Laundering, Economic Perspectives : An electronic journal of the U.S. department, Volume 6, Number 2.
8. Walker J. , Unger B. 2009, Measuring Global Money Laundering: “The Walker Gravity Model”, Review of Law and Economics 5:2.
9. Subasat T. , Bellos S. 2013, Governance and Foreign Direct Investment in Latin America : A Panel Gravity model approach, Latin American Journal of Economics, Vol.50 , No.1 , 107-131
10. Baldwin R., Taglioni D. 2006, Gravity for dummies and dummies for gravity equations, National Bureau of Economic Research, Working Paper No. 12516.

Předběžná náplň práce v anglickém jazyce

Money laundering, the concealment of the origins of illegally obtained money by various means of transfers, is considered a global threat to free market economies. Such highly complicated process with a substantial effect on the international financial system has shown to be challenging in estimation and effective in camouflage. Previous studies and academic papers from Walker (1999), Unger (2007) or Schneider (2015) focus on quantification and estimation of the volume of ‘laundered money’ through suspicious cash transactions, crime proceedings or number of prosecutions but their results appear with large margin of error.

This thesis aims to answer whether foreign direct investments are determined by money laundering. It observes if the effect of particular countries officially known as money-laundering centers is significant to FDI stocks in specific OECD country members. Countries which are of high level of development, are chosen explicitly because past studies seem to treat this issue only for samples taken from other regions.

For instance, Perez et al. (2012) do find a relationship between the distribution of FDI and money laundering but the analysis of countries is restricted to only Central and Eastern European economies. However, their research indicates strong evidence that investigating the distribution of FDI outflows may lead to an empirical result which shows that money laundering might be indeed a motive for large odd flows of investment.