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

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  • 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
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    References listed on IDEAS

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    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.
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    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.

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