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In recent years there has been growing recognition of the harm done to development by illicit financial flows, and the role of rich countries in providing an environment which tolerates or discourages them. To investigate whether indicators of illicit finance should be included in the CDI, the Center for Global Development commissioned this background paper from Petr Janský, a Czech academic economist from the Charles University and CERGE-EI in Prague.
The paper explains the rationale for including illicit finance in the CDI, explores the most relevant indicators, and discusses their advantages and limitations. Petr Janský proposes the inclusion of Financial Secrecy Index (FSI) into the investment component of CDI. This recommendation has been accepted, and the FSI has been added to the 2013 CDI. The FSI has been added to the investment component (now renamed finance) which assesses donor contributions to financial transparency and promoting investment in developing countries.