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The authors examine the role of FDI in facilitating money laundering and capital flight using transition economies' FDI outflows to show the extent to which FDI is caused by these motives. They estimate a model of FDI location choice and a model of the volume of FDI outflows. Illicit money flows influence both the choice of host countries for FDI and the volume of FDI outflows to these countries, and traditional models of FDI are not able to account for these investment flows. They estimate that 10% of total FDI outflows and over half of FDI to money laundering countries from this sample of host counties are intended to facilitate illicit money flows.
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