The impact of foreign direct investment on economic growth. Nigeria recorded a capital and financial account surplus of 235. This research examines time series data which includes gross domestic product gdp, capital flight, exchange rate and external debt which was. An econometric analysis of capital flight from nigeria. It was also discovered that capital flight had negative impact on the economy. Capital flight and the growth of nigerian economy iiard. Munich personal repec archive capital flight and investment dynamics in nigeria. The purpose of this paper is to shed light on how banks facilitate capital flight from africa. Colombia, ecuador, gabon, jamaica, mexico, nigeria, peru, philippines. This study investigated the impact of foreign direct investment on economic growth in nigeria. Nigeria is suffering from capital flight which has been a problem to the economy.
The problem is more severe in a nation like nigeria where. More so, since it involves transferring capital to foreign countries, it encourages increasing demand for foreign currency, especially dollar, which tends to exert pressure on exchange rate. This edited collection provides the most comprehensive thematic analysis of capital flight from africa, covering economic and institutional aspects, as well as domestic and global dimensions. The issue of capital flight from nigeria and other developing countries has. An economic analysis of capital flight from nigeria. In the light of this, this study assesses the impact of public debt on external reserve in nigeria. The federation comprises 36 states and 1 federal capital territory, where the capital, abuja, is located. Its coast in the south is located on the gulf of guinea in the atlantic ocean. Will further opening up increase capital flight out of nigeria. Nigeria is confronted with the issue of limited capital and has to resort to foreign debt in order to augment domestic savings, balance of payment deficits, and shortfall in revenue which induce continuous raise in the debt stock at an alarming rate. Abujas geography is defined by aso rock, a 400metre 1,300 ft monolith left by water erosion. Capital flight and domestic investment in nigeria in the period of a financially globalising world adetiloye, kehinde on. The problem is more severe in a nation like nigeria where domestic investment has been terribly affected.
Busari 2010, examinesthe impact of capital flight on some economic recession indicators in nigeria. To achieve this task a model of gdp was specified explaining capital flight from. Neither will the paper attempt to draw any policy iimplications. Our other findings suggest that other macroeconomic policy errors in the form of inflation unpredictability and foreign direct investment also increase capital flight from nigeria, south africa and zambia. To accomplish this task, three models of gdp growth rate were specified with each model incorporating a different measure of capital flight from nigeria. Pdf capital flight in the form of taxable wealth transferred to secret jurisdictions is one factor limiting the broadening of tax revenue base in. Fiscal policy and capital flight in kenya dianah ngui muchai and joseph muchai abstract. Of the six variables modeled as the determinants of capital flight in nigeria. Capital flight, investment and financial globalisation in.
An empirical analysis of the impact of capital flight on. Another strategy that governments can use to limit capital flight is to make holding domestic currency more attractive by keeping it undervalued relative to other currencies or by keeping local interest. An econometric approach samson bredino 1, peter fiderikumo 2, adedoyin adesuji3 1economics department, university of port harcourt, rivers state, nigeria 2department of banking and finance, bayelsa state. Nigeria in line with the world bank residual approach to the measurement of. Capital flight and the role of exchange rates in nigeria. We scale up the derived value of trade misinvoicing by the inverse of the share.
Capital flight and the nigerian economy umoru european. This study examines the significance of the e and o in the capital flows and flight in nigeria. The objective of this paper is to examine the impact of capital flight on exchange rate and economic growth in nigeria, using ols method to analyse the. Impact of capital flight on exchage rate and economic. Nigeria imports refined petroleum from countries it exports oil to and this results in capital flight. However, this study will build on the finding by investigating thereverse case of the study, that is, the impactof exchange rate itself on capital flight in nigeria. Econometric analysis of capital flight, based on a portfolio choice framework, was conducted using the ordinary least squares ols method of analysis. Ayadi 2008 found interest differential and exchange rate depreciation significant causes of capital flight in nigeria and concluded that capital flight is depriving nigerian economy of. Pdf capital flight is a challenge for many developing countries of the world. This study examines the effect of capital flight on the money. The study investigated the impact of capital flight on the economic development of nigeria. Summary africa is a source of largescale capital flight.
It is a planned city and was built mainly in the 1980s, replacing the countrys most populous city of lagos as the capital on 12 december 1991. Pdf on jan 1, 2012, richardson kojo edeme and others published capital flight and nigerias economy. The trend within this period was very noticeable between september. Undoubtedly, this had denied nigeria the opportunity of utilizing such amount of money for developmental purposes. Adetiloye kehinde adekunle department of banking and finance, school of business, covenant university, ota, nigeria abshact.
Nigerian economic growth and capital flight determinants. The collapse of the ruble has prompted a flight of capital as investors and savers in russia seek shelter outside the countrys borders. In identifying the determinants of capital flight in nigeria, the study employs the residual method of measuring capital flight. This implies that as capital flight inflow increases into the economy, it in turn increases the exchange rate causing a positive influence on the nigeria economy. Secondary data were sourced from the central bank of nigeria. This study critically examines the implications of capital flight on investment growth in nigeria between 1970 and 2006, because of the consequential effect it has on economic growth. The data indicate that nigerias capital flight may be episodic. The paper explores empirically the relative effect of capital outflows on the growth rate of gdp in nigeria. This page provides nigeria capital flows actual values. In view of nigeria being at the extreme of these two counter variables, this paper examines the relative impact of remittances and capital flight on poverty in nigeria. An empirical analysis of the impact of capital flight on nigeria. A largescale exodus of financial assets and capital from a nation due to events such as political or economic instability, currency devaluation or the imposition of capital.
Capital flight is a challenge for many developing countries of the world. The main variables of capital flight and investment and financial savings among others were. One of the estimates of capital flight includes the errors and omission of the balance of payment which is been used to balance up the accounts. Gdpgrowth rate causes capital flight in tanzania and bangladesh respectively. This paper empirically examines the effects of capital flight on exchange rate in nigeria using time series data spanning from 19812015. The time series data properties incorporated were examined using the augmented dickeyfuller adf unit root test and the results revealed that investment, capital flight, interest rate and exchange rate were. The research work made use of secondary data collected from central bank of nigerias statistical bulletin of various issues and national bureau of statistics. Capital flight impacts consumption, export, import, gross capital formation, and real per capita income in nigeria. An econometric analysis of capital flight from nigeria africa portal. The main goal of the paper is to measure the effect of capital flight on the growth of real gdp using an available panel dataset, which contains estimates of capital. Secondary source of data was employed in this study from 1986 to 2017 which were sourced from central bank of nigeria statistical bulletin 2017 published in 2018 and world development indicator published in 2019. Among the many postulated determinants, this study investigates the effect of the exchange rate on capital flight using 3 case studies from nigeria, south africa and zambia for the period 1970 to 2010.
This study provides measures of real capital flight from nigeria based on the residual method adjusted for exchange rate fluctuations and trade misinvoicing. To determine the direction of causality between capital flight and the exchange rate in nigeria, south africa and zambia. This is affecting domestic investment especially at this period of. Capital flight, investment and financial globalisation in nigeria. External debt and capital flight in subsaharan africa. The effectiveness of monetary policy in achieving macroeconomic objectives in nigeria have been constrained by several factors among them is the prevalence of capital flight in nigeria. Thus, actions to stop illicit capital flight must be taken by decision makers such as senior policy makers in both africa and in the west if they are to succeed. Capital flight from the weimar republic continued in 1931, despite the fact that capital expatriation was made an offense punishable by death. In nigeria, one of the unresolved and perturbing macroeconomic problems for the past two decades is the growing rate of capital flight. The issue of capital outflow from africa and the absorption into western economies, therefore, deserve attention and require concerted effort. Following the behavioural pattern of the variables on the basis of time series property test involving. This research embarks on an empirical verification of the impact of capital flight and economic growth in nigeria, as well as the determinant of capital flight from nigeria.
However, estimates of capital flight for all developing countries in the world have. The sole purpose of this paper is to present recent estimates of capital flight using a number of alternative, existing methodologies. Legal capital flight is recorded on the books of the entity or individual making the transfer, and earnings from interest, dividends, and realized capital gains normally return to the country of origin. Pdf capital flight and tax base in nigeria researchgate. Capital flight of such magnitude will continue to impede south africas development. Statement to the joint meeting of the united nations general assembly. Risk and capital flight in developing countries center for global. Capital flight from subsaharan african countries page 4 where mic is the african countrys imports from industrialized countries as re ported by the african country, and pmic is the industrialized countries exports to the african country as reported by the industrialized trading partners. Capital flight is a challenge to many emerging economies especially those with yet to be perfect. Capital flight from africa united nations economic.
Journal of research in national development find, read and cite all the research you. Nigeria, the world sixth largest producer of crude oil, does not fully possess the technology to refine petroleum. The extent of accumulated capital flight from 1980 to 2000 was 37 percent of the value of cumulative gross fixed. The impact of capital flight on economic growth by. Capital flight negatively impacts the economy in the form of foregone private investment, tax revenue and potential public investment. Descriptive and regression analyses were used as the estimation. Capital flight and nigeria economic growth boboye asian. The evidence, however, shows that capital flight, foreign reserve, external debt, foreign direct investment and current account balance cointegrate with gross domestic product gdp in nigeria within the year under study. This paradox highlights the importance of understanding the drivers of capital flight from africa. The results of the econometric analysis reveal that a number of factors systematically explain the portfolio behaviour of private wealth holders in nigeria. Also, capital flight from the trend analyses is on the rise and needs to be curbed.
The chapter identifies the main macroeconomic and other factors responsible for capital flight, considers the major consequences of capital flight on the domestic economy, and examines the linkages between capital flight and external debt. This paper provides evidence on the negative impact of the assessment of. To econometrically investigate the shortrun and longrun relationship between capital flight, the exchange rate and other economic variables in. Capital flight has become an important topic for detailed study in particular countries that are heavilyindebted.
Pdf impact of capital flight on economic growth in nigeria. Pdf capital flight and domestic investment in nigeria. Impact of capital flight on economic growth in nigeria. Pdf the impact of capital flight on economic development. This research work presents an empirical analysis of the impact of capital flight on nigeria economy. Capital flight from north african countries page 1 introduction north african countries have traditionally outperformed their sister nations south of the sahara in terms of economic growth, enabling them to reach the middleincome status and drive down poverty to much lower levels. This study concentrates on capital flight and external debt in nigeria.
Because of the low level of technological development, the african economy is, by default, based largely on the export of raw. Effects of capital flight and its macroeconomic determinants on agricultural growth in nigeria 197020 francis robert usman department of agricultural economics, university of nigeria, nigeria email. Capital flight has led to the depletion of nigerias foreign reserves, thus weakening the naira. Capital controls curtail spending of nigerias jet set. Mi ajayi department of economics university of ibadan ibadan3 nigeria i this paper was compicted under the world bank visiting research fellow progra. Capital flight and investment dynamics in nigeriaa time. However, lawanson 2007, in his study on capital flight from nigeria based on portfolio choice approach using data from 19702001, found that gdp growth rate has a negative significant effect on capital flight in. Capital flight may be legal or illegal under domestic law. The purpose of this paper is to investigate the effect of corruption and institutional governance indicators on capital flight in subsaharan africa. The time series data was subjected to stationarity tests using adf and pp.
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