Financial Flows Research Articles

ENSURING SUSTAINABLE WAQF-ZAKAT MICROTAKAFUL PROTECTION THROUGH A SYSTEM DYNAMICS APPROACH

The Islamic financial ecosystems, such as zakat and waqf, have roles in tackling poverty and can be integrated into providing financial protection, such as death benefits to the poor through microtakaful. However, unpredictable payouts and irregular contributions can hinder the implementation of microtakaful, affecting cash flows. This paper employs a system dynamics approach to simulate the cash flows of microtakaful funds, emphasizing the influence of three key factors: the rate of new participants, the mortality rate, and the contribution rate. Note that this approach is chosen for its ability to model complex systems and predict the behavior of microtakaful funds over time. The data collected were from various institutions, including the Life Insurance Association of Malaysia (LIAM), the Central Bank of Malaysia (BNM), and the Department of Statistics Malaysia (DOSM) from 2018 to 2020. The model indicates a minimum contribution rate of RM130 per year, with a 2% mortality rate and 0.8% annual increase in the new participants. The model serves as a foundation for designing a simple and understandable non-profit microtakaful product.

Inflation and Fiscal Policy: Is There a Threshold Effect in the Fiscal Reaction Function?

Abstract The euro area, like other advanced economies, faced high inflation over the past years. We analyse empirically the impact of inflation on public finances in the euro area, focusing on the question of whether at such high levels, inflation could have a different impact on the primary budget balance. To this end, we estimate a fiscal reaction function for euro area countries and find evidence of non-linear short-term effects of HICP inflation on the primary balance. Over the period 1999–2022, we unveil an inverse U-turn relationship and an inflation turning point – beyond which its short-term (contemporaneous) impact on the primary balance starts being negative. These results reflect primarily the most recent high inflation episode and indicate that in such conditions inflation can be costly for public finance flows even in the shorter run.

Spotting Portfolio Greenwashing in Environmental Funds

AbstractThis paper examines greenwashing practices in environmental funds. We utilize a unique data set of US equity mutual fund holdings between 2012 and 2021 to calculate the funds’ carbon footprints. Using a difference-in-differences analysis, we find that, following their commitments to sustainability, environmental funds fail to reduce their carbon footprints relative to a matched group of conventional funds. We also find, using an event study, a significant increase in the flows of environmental funds in response to these commitments. The combination of the failure to reduce carbon footprints and the surge in inflows provides evidence of greenwashing by environmental funds, raising concerns about their fiduciary duty. Our findings also show that greenwashers tend to initially have low flows and high portfolio carbon emissions suggesting that they announce their commitments to sustainability just to attract investors.

International Tax Transparency Standards and the Tackling of Illicit Financial Flows

Illicit financial flows, most of which are tax-motivated, continue to cripple development and undermine the rule of law and fairness in our societies. The now mature framework of international tax transparency standards can help tackle these flows by affording access and cross-border exchange of relevant financial and ownership data.

Global-local nexus in sustainable development: the influence of international green investment on local environmental spending

Strengthening the financial capabilities of local governments is essential for achieving the Sustainable Development Goals. Previous research has primarily focused on the flows of finance across countries and regions, neglecting the interaction between international investment and local fiscal response. To address this gap, this study first developed the typology of local environmental spending, and then linked it to a panel dataset composed of 4,439 CDM projects in China and expenditure at the provincial level from 2005 to 2017 to explore the role of international green finance. By categorizing local environmental spending into capital spending and recurrent spending, the findings reveal that international green investment primarily influences the former type, with regional and project type variations. With explanation and discussions of the results, this study contributes to sustainability research by investigating the global-local nexus through a fiscal lens and provides policy insights for local capacity building and global financial system design.

Rentier capitalism, social reproduction, and the limits of liberalism: mapping gendered asset value in Kuwait

ABSTRACT This paper introduces the concept of citizenship rent to help explain the apparently contradictory coexistence of liberalising economic reforms and the entrenchment of patriarchal values. Citizenship rent (CR) is defined as the financial flows that move from the state to the citizen in the form of entitlements, employment, and access to state-subsidised goods, labour and business opportunities. Our innovative proposal substitutes transaction cost economics’ assumption of market selection for a selection by patriarchy to show how gender plays a central role in the reproduction of the asset specificities that increase transaction costs. This illustrates how an extractive, asset-based economy, like Kuwait's, can afford to double down on conservative social values, even at a considerable fiscal price, as long as the transaction costs of getting oil to the international markets are not increased through social disruption or political uncertainty. Rather than examining how women’s social reproductive work subsidises social and political stability, CR reveals women’s role in sustaining assets valuable to the state. This paper demonstrates that a close examination of the social values that inhibit transactions can also reveal patriarchal structures in rentier capital and exhibit a need to further analyse the patriarchal transaction costs that shape and sustain societies.

Russian diplomacy and western gas wars against Russia

The article is devoted to the study the use by Western countries, primarily the United States and the EU, of the gas factor for political and economic pressure on Russia in order to squeeze it out of world gas markets, primarily European, and reduce the fl ow of funds from Russian gas exports to the state budget. The article analyzes how, in order to achieve their goals, the United States and a number of members of the European Union manipulate the actions of Qatar, Turkey and the Balkan countries to disrupt the implementation of large gas projects to deliver gas from Russia to Europe through main gas pipelines along the bottom of the Baltic and Black Seas, bypassing Ukrainian transit. Special attention how the West has used and is using Ukraine to displace Russian pipeline gas from European markets. The article also considers how the West has used and is using Ukraine to displace Russian pipeline gas from European markets. Special attention is paid to the role of liquefi ed natural gas (LNG)to increase the supply of Russian gas to the world market, which makes it possible to reduce Russia's dependence on gas exports through pipelines. The issue of prospects for the reorientation of gas exports from the West to the East, primarily to China, is also being considered.

The economic and fiscal transition costs of global climate mitigation in fossil fuel export dependent economies

Global decarbonization has large implications for trade and financial flows, and with few economies likely to be more affected than those relying heavily on exporting fossil fuels. This study first identifies 40 highly fossil fuel dependent economies and then, through several empirical strategies, examines the potential implications for oil rents, public finances and economic growth from global decarbonization. First, it is estimated that as a group, countries would lose more than 60 percent of oil rents alone, or between (present value adjusted) US$12–14 trillion, for the period 2023–2040 under a global ‘net-zero 2050’ versus a ‘business as usual’ scenario, - a loss equivalent in size to between 120 and 142 percent of GDP. Second, local projections model estimates suggest that there are large and persistent adverse growth and fiscal impacts associated with global decarbonization in emerging market and developing economy oil exporters. Here, a 10 percentage point (pp) decrease in (real) oil price inflation is associated with a decline of 1.58 percent in (real) GDP four periods after the shock; a decrease in annual government revenue (as a percentage of GDP) by between 0.6 and 0.8 pp and; an addition of about 0.5 pp to government debt per year. Finally, the study discusses relative vulnerabilities, and the domestic and international policy options needed to mitigate transition cost. Aside from a handful of primarily high-income countries, most countries have little or no savings to help them cushion an inevitable steep fall in demand for their main export and source of revenue, and more than one third of countries are characterized by either low or medium levels of human development. Whereas several countries are relatively well positioned to successfully mitigate the transition cost provided urgently prioritized domestic reforms, a substantial subgroup of countries will need international assistance to avoid potentially large negative socio-economic consequences.

China’s Infrastructure Investments in Africa: An Imperative for Attaining Sustainable Development Goals or A Debt-Trap?

In recent times, China, as part of its ‘Going Global Strategy’, has extended its development aids to countries in Africa. Being the largest country-to-country lender in the world, China has become the largest supplier of infrastructural finance and second largest source of foreign direct investments (FDI) to Africa. Some scholars have expressed concern that the engagement is a debt trap, a ruse towards modern neo-colonization and resource extinction in Africa. However, others have documented the significance of such investments in attaining SDGs. In this paper, we employ the Heckman two-stage model and logistic regression to predict the debt-trap crisis in Africa and the results establish no debt-trap paradigm for China’s infrastructure investments in Africa. Contrary to the belief on resource-seeking motive, we find that commodity-based infrastructure loan reduces debt burden on African countries, albeit other inherent factors contribute to the upsurge of government debt. Furthermore, we test the impact of China’s infrastructure investments on achieving the SDGs, specifically SDG 3 (human development) and SDG 7 (environmental sustainability through access to modern energy). While we reckon that China’s infrastructure investment is beneficial for SDG attainment, our study recommends that fiscal policy governing foreign financial flows should be periodically reviewed to avoid debt overhang.

External Financial Flows, Fiscal Policy and Human Development Index in Nigeria

The sustainable development goals that were rolled out and adjusted from the un-attainment of Millennium development goals of 2015, lacks a notable financial option and channel that would help developing countries like Nigeria to achieve goal 3, goal 4 and goal 8, which this study captured with the human development index. This study examines the effect of external financial flows, fiscal policy and human development index in Nigeria. The used the secondary data that was collected from World development indicators and Central bank of Statistical Bulletin. The period was between 1991 to 2022 bot year inclusive. The external financial flows was captured with foreign direct investment, foreign aid, remittances, net exports, external debt while fiscal policy was captured with government expenditure for education and government expenditure for health. The findings from the external financial flows revealed that foreign direct investment and remittances have a negative significant effect on human development index while net export have a positive significant human development index. The fiscal policy measures revealed that government expenditure on education have a positive significant effect on human development index while government expenditure on health have a negative significant effect on health. The Nigerian government should focus on policies that boost export sectors, especially those that add significant value to raw materials. This can be achieved through subsidies, tax incentives, and investment in infrastructure. The Nigerian government should allocate a larger portion of the national budget to education. This increase in funding should aim to address infrastructural deficits, enhance teacher training, and provide adequate learning materials. Implement robust mechanisms to ensure that health funds are used efficiently and transparently.

INTERNATIONAL EXPERIENCE IN USING INNOVATIVE TOOLS OF STATE FINANCIAL CONTROL OVER ILLEGAL FINANCIAL FLOWS

Effective financial control often requires cooperation between countries and international organizations. The study of international experience contributes to the development of mechanisms of international cooperation and information exchange to combat illegal financial flows. The article examines the international experience of using innovative tools of state financial control to combat illegal financial flows. Emphasis is placed on the analysis of modern practices in countries with developed systems of financial control, such as the USA, Great Britain, Germany, France, and Japan. The main tools used to detect and prevent illegal financial flows are described, including automated transaction monitoring systems, analytical platforms based on artificial intelligence, as well as methods of a risk-based approach to auditing. Special attention is paid to the role of international cooperation and information exchange between financial institutions of different countries, which allows more effective detection and termination of activities related to money laundering and terrorist financing. The article also analyzes the legal acts that regulate the use of innovative financial control tools in different countries and their compliance with international standards, such as FATF recommendations. The challenges and risks associated with the introduction of the latest technologies into the financial control system, including issues of data confidentiality and protection of human rights, were studied. The analysis of indicators and methods of assessment of illegal financial flows was carried out, the formation of illegal financial flows in modern globalized conditions was analyzed, the experience of other countries with regard to state financial control and its effectiveness was studied, innovative approaches and technologies that could be used to improve the financial control system and the possibility of their implementation of financial control in Ukraine. In addition, the evaluation of the effectiveness of the proposed innovative tools in the fight against illegal financial flows was carried out and the need for the development of such an assessment methodology, which would allow measuring the real impact of new technologies on reducing the volume of illegal financial flows, was substantiated.

External Financial Flows and Domestic Credit Volatility Effect on Industrialization in Selected African Countries

Countries all over the world focus on industrialization as a foundation for rapid economic development and unemployment reduction. Without stable external and domestic finance, we cannot achieve this goal. Financial volatility has an impact on a country’s industrialization process. The aim of this study is to determine how external and domestic credit volatility affect industrialization in Africa. Data for some selected countries for 1992–2020 was used. The author used the Prais-Winsten regression method with Panel Corrected Standard Errors (PCSE) to estimate and analyze the model. Descriptive and quantitative methods of analysis were also used to analyze the long-balanced panel data set for the 17 selected African countries with available data. The results showed a combination of positive and negative effects of financial volatility on industrialization in Africa. The study concludes that domestic credit volatility has adversely affected industrialization in Africa and recommends the development of financial institutions on the continent through recapitalization, skilled manpower development and innovative development of different financial instruments.

Multilateral financial flows and state–business relations in Morocco

ABSTRACT Political economy explanations of regime resilience often look at domestic support bases and patronage systems. Foreign aid to the state is seen as a direct form of propping up regimes. This article attempts to track the flow of foreign assistance to one part of the domestic support base of a regime, namely the economic elite, thereby making a connection between domestic explanations and foreign support explanations of regime resilience. The core argument of this article is that multilateral financial flows from Western dominated institutions may preserve regimes in the Middle East and North Africa. Multilateral flows from the World Bank Group, the European Investment Bank, and the European Bank for Reconstruction and Development went to regime insiders and thus potentially strengthened existing economic elites during the time in which the former Islamist opposition party led a coalition government. I draw on the linkage dimension of Levitsky and Way’s model to show the importance of specifying the nature and destination of multilateral financial ties with Morocco’s private sector. This contribution helps us link the international dimension to the domestic political economy. It thus potentially adds to our understanding of monarchical regime resilience post-Arab Spring by highlighting how multilateral financial institutions support an important part of the economic elite.

Enhancing and Validating a Framework to Curb Illicit Financial Flows (IFFs)

Enhancing and Validating a Framework to Curb Illicit Financial Flows (IFFs)

Impact of debt maturity and cash holding on investment decisions in Vietnamese companies

The study used data from 520 listed firms between 2004 and 2020 to ascertain the relationship between debt maturity, cash holding, and investment decisions in Vietnamese enterprises. The use of more conservative tactics results from the rise in agency costs. Increased cash holding encouraged businesses to employ internal resources to reduce external financing risks, favorably impacting investment decisions. The negative link between investment decisions and intangible assets indicates increased external funding costs. A high tax shield benefited the investment since it freed up financial flows for productive assets. The robustness test revealed that cash holding positively corresponds with investment decisions in consumer and technology enterprises and that technology firms are incredibly responsive to changes in debt maturity.

Sanctions and their impact on accounting in medical budgetary institutions

Accounting is especially important for medical budget institutions under sanctions, in order to ensure financial stability and effective resource management. This article is devoted to topical issues that reveal the impact of sanctions on accounting in medical budgetary institutions. The following methods were used in the research: analysis and synthesis, comparison, logical and systematic approaches. As a result of the research, this article provides information about the healthcare sector, which is one of the most important sectors of the economy. It is shown that in sanctions conditions, which can have a negative impact on the country’s economy, especially in the healthcare sector, accounting is the basis of financial planning and control, ensuring more efficient management of resources and funds. Based on this, the main task of accounting in medical institutions is the correct reflection of all financial transactions and obligations related to the provision of medical services in the accounting system. This allows institutions to control their activities, plan financial flows, and track expenses and income. It is concluded that despite sanctions and geopolitical crises, medical budget institutions are actively developing, mastering new technologies, opening branches and trying to maintain efficiency in the proposed circumstances. The results of the study will be of interest to practitioners in the field of accounting of budgetary institutions, as well as the scientific community involved in research in the field of health care. The results reflected in this article can be used in the educational process of higher educational institutions and in the practical work of accounting departments of modern organizations (including healthcare).

Does democracy stimulate remittances?

AbstractThe phenomenon of remittances is the subject of intense debate among politicians, researchers, and academics. This is because it touches on a multitude of human, economic, and financial aspects. This paper empirically investigates the empirical relationship between political systems and remittances in order to understand how changes in political systems in the home and host countries affect remittances. By using the gravity model of bilateral remittance flows for 101 sending countries and 92 developing receiving countries for the period 2010–2017. Findings indicate that strengthening democratic processes in countries of origin leads to more remittances. This result is most pronounced in low‐income countries. However, democracy in host countries has a negative effect on remittances. These findings are robust to the different techniques and specifications used. Strengthening democratic institutions in low‐income countries can attract more financial flows.

Towards a more transformative approach to climate finance

ABSTRACT Without deliberate and proactive attempts to redirect and regulate flows of public and private finance, achieving the goals of the Paris Agreement will remain elusive. Yet, despite extensive engagement with different dimensions of climate finance by academics and policy practitioners alike, the financial system continues to be fundamentally misaligned with climate goals by locking in high-carbon development pathways while inadequately resourcing climate adaptation. Moving beyond dominant discourses about mobilising and de-risking private finance, this paper seeks to identify potential alternative interventions and leverage points to align the mobilization and redirection of finance with a more transformative approach to climate finance that targets the sources of climate change in a globally unequal fossil-fuel economy. This implies making greater use of the many policy tools that governments have at their disposal with regards to taxation and regulation, often deployed to fund the welfare state or for macroeconomic management, but which constitute powerful levers for mobilising and redirecting climate finance that have been excluded thus far from conventional definitions of climate finance used by the international community. Consciously moving beyond a narrower focus on financing decarbonization, this implies greater attention to redirecting, hypothecating and regulating the whole ecosystem of global finance so that the goals and organization of the global financial system and global climate action are better aligned.

The role of freight forwarding companies in detecting and investigating trade-based money laundering

PurposeThis study aims to investigate the role of freight forwarding companies in detecting and reporting trade-based money laundering. The proximity of freight forwarding companies to shipping-related trade-based money laundering red flags places them in an ideal position to detect suspicious transactions.Design/methodology/approachThe study used semi-structured interviews with expert participants in freight forwarding shipping and compliance aspects around freight forwarding. This study focuses on the South African context.FindingsFreight forwarding companies are well-positioned to detect, investigate and report on trade-based money laundering schemes. However, the companies are not always aware of the guidelines designed to assist in identifying trade-based money laundering schemes. Thus, freight forwarding companies develop internal processes to identify trade anomalies but are often unable to link trade anomalies to illegal financial flows and trade-based money laundering schemes.Research limitations/implicationsThe current regulations on money laundering can be extended to freight forwarding companies by the respective regulators for enhanced anti-money laundering protection. This study is limited to freight forwarding companies in a South African context.Practical implicationsIncreased awareness among staff in freight forwarding companies can assist them in identifying trade-based money laundering red flags to detect and prevent trade-based money laundering schemes.Social implicationsThis paper assists other role players and policymakers in the trade process to create a better awareness of trade-based money laundering. The limited obligations on freight forwarding companies to comply with anti-money laundering regulations lead to a more volunteer-like compliance practice.Originality/valueTo the best of the authors’ knowledge, this is the first paper that offers insight into the role of freight forwarding companies in detecting trade-based money laundering in South Africa.

Modest forest and welfare gains from initiatives for reduced emissions from deforestation and forest degradation

Reduced emissions from deforestation and forest degradation (REDD+) projects and programmes promise to deliver performance-based, cost-effective climate change mitigation. Fifteen years after its conception, we analysed the rigorous counterfactual-based evidence for environmental and welfare effects from such national and subnational initiatives, along with a Theory of Change. Using machine-learning tools for literature review, we compared 32 quantitative studies including 26 primary forest-related and 12 socioeconomic effect sizes. Average environmental impacts were positively significant yet moderately sized, comparable to impacts from other conservation tools, and mostly impermanent over time. Socioeconomic impacts were welfare-neutral to slightly positive. Moderator analysis showed that environmental additionality was likely restricted by project proponents’ adverse spatial targeting of low-threat areas. Scarce funding flows from carbon markets and ill-enforced conditionality probably also limited impacts. Hence, important policy and implementation lessons emerge for boosting effectiveness in the current global transition towards larger-scale, jurisdictional action.