IDEAS home Printed from https://ideas.repec.org/a/jfr/ijfr11/v11y2020i1p348-360.html
   My bibliography  Save this article

Capital Flight and Domestic Investment in Nigeria: Evidence From ARDL Methodology

Author

Listed:
  • Lionel Effiom
  • Alfa Charles Achu
  • Samuel Etim Edet

Abstract

Capital flight is a challenge for many developing countries of the world. The problem is more severe in a nation like Nigeria where domestic investment has been terribly affected. This study undertakes an empirical investigation of the impact of capital flight on domestic investment in Nigeria between 1980 and 2017. Deploying the Auto Regressive Distributed Lag (ARDL) econometric methodology, the study finds that capital flight has negative and significant impact on domestic investment. In particular, the long run impact of capital flight on domestic investment (0.57) turns out to be more severe than its impact in the short run (0.27), implying that a continuous and persistent build-up of capital flight exerts a negative cumulative effect on domestic investment over time. The study further reveals that the quality of institutions in Nigeria is a disincentive to domestic investment. It therefore recommends the strengthening of institutions to rein in on the illegal outflow of capital from the Nigerian economy in order to guarantee the availability of investible funds. The real sector of the local economy must be grown to bolster the value of the naira. This will stem the tide of capital flight and attract investments into critical sectors.

Suggested Citation

  • Lionel Effiom & Alfa Charles Achu & Samuel Etim Edet, 2020. "Capital Flight and Domestic Investment in Nigeria: Evidence From ARDL Methodology," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(1), pages 348-360, January.
    • Handle: RePEc:jfr:ijfr11:v:11:y:2020:i:1:p:348-360
    DOI: 10.5430/ijfr.v11n1p348
    as

    Download full text from publisher

    File URL: http://www.sciedu.ca/journal/index.php/ijfr/article/view/16728/10410
    Download Restriction: no
    File URL: http://www.sciedu.ca/journal/index.php/ijfr/article/view/16728
    Download Restriction: no
    File URL: https://libkey.io/10.5430/ijfr.v11n1p348?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Quan Le & Meenakshi Rishi, 2006. "Corruption and Capital Flight: An Empirical Assessment," International Economic Journal, Taylor & Francis Journals, vol. 20(4), pages 523-540.
    2. Michael B. Devereux & Makoto Saito, 2006. "A Portfolio Theory of International Capital Flows," Working Papers 112006, Hong Kong Institute for Monetary Research.
    3. World Bank, 2015. "World Development Indicators 2015," World Bank Publications - Books, The World Bank Group, number 21634.
    4. A. Yasemin Yalta, 2010. "Effect of Capital Flight on Investment: Evidence from Emerging Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(6), pages 40-54, November.
    5. Effiom, Lionel & Etim Edet, Samuel, 2019. "Facilitation Of Foreign Direct Investment: Evidence From Cross River State, Nigeria," International Journal of Contemporary Accounting Issues-IJCAI (formerly International Journal of Accounting & Finance IJAF), The Institute of Chartered Accountants of Nigeria (ICAN), vol. 8(2), pages 75-95, September.
    6. David B. Gordon & Ross Levine, 1989. "The ‘Problem’ of Capital Flight—a Cautionary Note," The World Economy, Wiley Blackwell, vol. 12(2), pages 237-252, June.
    7. Adesoye, A. Bolaji & Maku, Olukayode E. & Atanda, Akinwande A., 2012. "Capital Flight and Investment Dynamics in Nigeria: A Time Series Analysis (1970-2006)," MPRA Paper 35836, University Library of Munich, Germany.
    8. Pastor, Manuel Jr., 1990. "Capital flight from Latin America," World Development, Elsevier, vol. 18(1), pages 1-18, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Emmanuel Uche & Lionel Effiom, 2021. "Fighting capital flight in Nigeria: have we considered global uncertainties and exchange rate volatilities? Fresh insights via quantile ARDL model," SN Business & Economics, Springer, vol. 1(6), pages 1-22, June.
    2. Olusola Joel Oyeleke, 2021. "On the Non-Linear Relationship between Fiscal Deficit and Inflation: The Nigeria Experience," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 27(2), pages 105-117, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Heydari, Hassan & Jariani, Farzaneh, 2020. "Analyzing Effective Factors of Capital Outflow from the Middle East and North African Countries (MENA)," MPRA Paper 104547, University Library of Munich, Germany.
    2. Lionel Effiom & Emmanuel Uche & Otei Asuquo Otei, 2021. "Asymmetric effects of capital flight on domestic investment in Nigeria: evidence from non-linear autoregressive distributed lag model," SN Business & Economics, Springer, vol. 1(10), pages 1-23, October.
    3. Léonce Ndikumana & Mare Sarr, 2016. "Capital flight and foreign direct investment in Africa: An investigation of the role of natural resource endowment," WIDER Working Paper Series wp-2016-58, World Institute for Development Economic Research (UNU-WIDER).
    4. Léonce Ndikumana & Mare Sarr, 2016. "Capital flight and foreign direct investment in Africa: An investigation of the role of natural resource endowment," WIDER Working Paper Series 058, World Institute for Development Economic Research (UNU-WIDER).
    5. Dachraoui, Hajer & Smida, Mounir, 2014. "La Mesure de la Fuite des Capitaux et son Impact sur l’Investissement Domestique : Cas des Pays Émergents [Measurement of capital flight and its impact on domestic investment in emerging countries]," MPRA Paper 62740, University Library of Munich, Germany.
    6. Mossadak, anas, 2018. "Illicit financial outflows from Africa: measurement and determinants," MPRA Paper 104620, University Library of Munich, Germany, revised 2018.
    7. Leonce Ndikumana & Mare Sarr, 2016. "Capital Flight and Foreign Direct Investment in Africa: An Investigation of the Role of Natural Resource Endowment," SALDRU Working Papers 167, Southern Africa Labour and Development Research Unit, University of Cape Town.
    8. Jean-Louis Combes & Alexandru Minea & Pegdéwendé Nestor Sawadogo, 2019. "Assessing the effects of combating illicit financial flows on domestic tax revenue mobilization in developing countries," CERDI Working papers halshs-02019073, HAL.
    9. Jan Fagerberg & Bengt-Åke Lundvall & Martin Srholec, 2018. "Global Value Chains, National Innovation Systems and Economic Development," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 30(3), pages 533-556, July.
    10. Mercy W. Mwangi & Amos G. Njuguna & George O. Achoki, 2019. "Relationship between corruption and capital flight in Kenya: 1998-2018," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 8(5), pages 237-250, September.
    11. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Governance, capital flight and industrialisation in Africa," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-22, December.
    12. Klotz, Richard & Gurung, Ram & Ogle, Stephen & Paustian, Keith & Sheehan, John & Bento, Antonio M., 2015. "Evaluating Policy Options to Reduce N2O Emissions from US Agriculture," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205808, Agricultural and Applied Economics Association.
    13. Richard Chisik & Nazanin Behzadan & Harun Onder & Apurva Sanghi, 2016. "Aid, Remittances, the Dutch Disease, Refugees, and Kenya," Working Papers 062, Toronto Metropolitan University, Department of Economics.
    14. Al Zayed, Islam Sabry & Elagib, Nadir Ahmed & Ribbe, Lars & Heinrich, Jürgen, 2016. "Satellite-based evapotranspiration over Gezira Irrigation Scheme, Sudan: A comparative study," Agricultural Water Management, Elsevier, vol. 177(C), pages 66-76.
    15. Corno, Lucia & Voena, Alessandra, 2023. "Child marriage as informal insurance: Empirical evidence and policy simulations," Journal of Development Economics, Elsevier, vol. 162(C).
    16. SangHyun Cheon & Dong-Wook Song & Sungjin Park, 2018. "Does more competition result in better port performance?," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 20(3), pages 433-455, September.
    17. Iseghohi Judith Omon, 2021. "Migrant Remittances and Health Outcomes in the West Africa Monetary Zones (WAMZ)," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 24(81), pages 15-32, September.
    18. Rentschler, Jun, 2016. "Incidence and impact: The regional variation of poverty effects due to fossil fuel subsidy reform," Energy Policy, Elsevier, vol. 96(C), pages 491-503.
    19. Asongu, Simplice & Nwachukwu, Jacinta, 2016. "Reconciliation of the Washington Consensus with the Beijing Model in Africa," MPRA Paper 73685, University Library of Munich, Germany.
    20. Simplice A. Asongu & Uchenna R. Efobi & Ibukun Beecroft, 2021. "Aid in Modulating the Impact of Terrorism on FDI: No Positive Thresholds, No Policy," Forum for Social Economics, Taylor & Francis Journals, vol. 50(4), pages 432-456, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jfr:ijfr11:v:11:y:2020:i:1:p:348-360. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gina Perry (email available below). General contact details of provider: http://ijfr.sciedupress.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.