The Impact of Financial Crime on the Capital Inflow for the G20 Countries (2012–2023)

This paper investigates the impact of financial crime on capital inflows into the G20 economies over the period 2012–2023. Utilizing a panel dataset comprising indicators of financial crimes, specifically corruption perceptions and anti-money laundering (AML) compliance, alongside macroeconomic controls, the study examines whether financial crime significantly affects the overall magnitude and composition of international capital inflows. Employing panel corrected standard error (PCSE) estimations, the empirical results show a statistically significant negative relationship between financial crime and capital inflows, suggesting that higher financial crime risk discourages foreign direct investment (FDI) and remittances. Moreover, the adverse impact of financial crime differs across countries based on income classification, being more pronounced in lower-income G20 economies. These findings underline the critical importance of robust governance structures and practical regulatory frameworks to mitigate financial crime risks and maintain stable international capital inflows. The paper concludes with actionable policy recommendations aimed at enhancing institutional quality and strengthening financial oversight to foster investor confidence and promote sustainable economic growth.