Improving AML enforcement empirically improves sustainable development and institutions – that solves our kleptocracy impact

ML = Money Laundering, AML = Anti Money Laundering, SDI = Sustainable Development Indicator

Table 4 presents the results of the Driscoll-Kraay, Prais-Winsten estimate difference GMM (D-GMM) and IV-GMM estimators. The coefficients show that AML regulations promote sustainable development in developing countries. A 1% increase in AML improves SDI by 12%. The D-GMM results also show there is a 5% increase in SDI for one unit improvement in anti-money laundering regulations. These results are consistent with the related studies that show that AML regulation promotes economic growth and encourages inflow of foreign investors because it increases investors' confidence in an economy (Ofoeda, Agbloyor, & Abor, 2022a; Ofoeda, Agbloyor, & Abor, 2022b; Ofoeda, Agbloyor, & Abor, 2022d; Ofoeda, Agbloyor, Abor, & Achampong, 2022). Anti-money laundering activities ensure quality of life and improve overall wellbeing. The impact of AML regulations is very crucial in restating confidence and trust in the financial market system and sustaining the economy in general. Studies prove beyond doubt that better regulations should grow the economic system for sustainability (Djankov et al., 2006). An effective AML regulation is expected to improve economic, social and environmental sustainability in developing countries. The results of this study also support the view of Porta et al. (1998), who state that legal systems and effective regulations would discourage asymmetric information and motivate transparent transactions, thereby fostering customer confidence and trust for sustainable growth and development.

The coefficients of institutional quality (IQ) and income per capita (LGDPPC) are positive and significant in relation to sustainable development. The results suggest that a 1% increase in quality of institution promotes sustainable development by 3.1%. Likewise, a percentage change in income increases sustainable development by 5.6% in developing nations. Human capital (SCH) has a positive impact on sustainable development at 1% significance level. This is in line with the submission of Koirala and Pradhan (2019). Furthermore, Ajide et al. (2023) and Osinubi et al. (2023) confirm that income per capita and human capita proxied by year of schooling improve the achievement of sustainable development in Africa and Middle East nations. Education provides the capacity for individuals to become economically useful as it equips individuals with necessary skills for economic empowerment, thereby increasing the possibility of achieving economic and social sustainability (Obanya, 2009). Institutional quality reduces environmental degradations and it is the ‘rule of the game’ for social interactions which promote justice and equity among economic agents (Torras & Boyce, 1998). The study of Ali et al. (2019) further suggests that quality of institution is very important for sustainable growth and development, while the findings of Akhbari and Nejati (2019) are conflicting. Furthermore, Osabuohien et al. (2014) find that the quality of institutions has a potential for environmental sustainability. The coefficients of FDI and trade openness have negative impacts on sustainable development. This supports the previous findings on the pollution haven analysis. FDI produces negative environmental externalities due to the lax regulations in developing nations (Abid et al., 2015; Carullo et al., 2013).