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An economic analysis of capital flight from Nigeria

Author

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  • Ajayi, S. Ibi

Abstract

Unlike Latin America, there have been no detailed estimates of capital flight or its determinants in Africa. The author addresses this problem and, using several concepts, provides"bands"or a"range"for capital flight in Nigeria. A significant proportion of capital flight can be estimated from recorded data in the balance of payments and debt statistics - but these estimates are only as good as the data are reliable. Significant amounts of capital flight, relative to external debt, took place between 1970 and 1989. Trade-faking was an important vehicle: exports were under-invoiced to the tune of about US $8.1 billion and imports were over invoiced about US $6.0 billion. Econometric analysis shows that the culprit to be domestic macroeconomic policy - in the form of inflation, exchange rate misalignment, fiscal deficit, and the lack of opportunities for profitable domestic investments - combined with the relative attractiveness of foreign investments. Eliminating distortions in the economy could minimize substantially externally held foreign claims and minimize capital flight. Among things that need to be done: (a) ensure that the nation's currency is not overvalued; (b) establish an integrated, unified tariff structure to reduce the rewards for trade-faking; (c) establish fiscal discipline, to maintain macroeconomic stability and reduce inflation; (d) ensure a positive real rate of interest - high enough to attract funds but not so high as to stifle investment initiatives; (e) adopt a realistic exchange rate determined by market forces; and (f) foster attitudinal changes that contribute positively to honest government.

Suggested Citation

  • Ajayi, S. Ibi, 1992. "An economic analysis of capital flight from Nigeria," Policy Research Working Paper Series 993, The World Bank.
  • Handle: RePEc:wbk:wbrwps:993
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    Citations

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    Cited by:

    1. James K. Boyce & Léonce Ndikumana, 2000. "Is Africa a Net Creditor? New Estimates of Capital Flight from Severely Indebted Sub-Saharan African Countries, 1970-1996," UMASS Amherst Economics Working Papers 2000-01, University of Massachusetts Amherst, Department of Economics.
    2. Dachraoui, Hajer & Smida, Mounir & Sebri, Maamar, 2020. "Role of capital flight as a driver of sovereign bond spreads in Latin American countries," International Economics, Elsevier, vol. 162(C), pages 15-33.
    3. Omotor, Douglason G., 2019. "A Thrifty North and An Impecunious South: Nigeria's External Debt and the Tyranny of Political Economy," MPRA Paper 115292, University Library of Munich, Germany, revised 12 Oct 2019.
    4. Robert Kappel, 1993. "Future prospects for the CFA Franc Zone," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 28(6), pages 269-278, November.
    5. repec:aer:wpaper:343 is not listed on IDEAS
    6. Addae, Edna & Ackah, Ishmael, 2017. "Inflation dynamics in pre and post deregulation era in Ghana: Do petroleum prices have any influence?," MPRA Paper 77496, University Library of Munich, Germany.
    7. Vincent A. Onodugo & Ijeoma E. Kalu & Oluchukwu F. Anowor & Nnaemeka O. Ukweni, 2014. "Is Capital Flight Healthy For Nigerian Economic Growth? An Econometric Investigation," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 3(1), pages 10-24.
    8. Usman, Francis Robert & Arene, Chukwuemeka John, 2014. "Effects of Capital Flight and Its Macroeconomic Determinants in Agricultural Growth in Nigeria (1970-2013)," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 2(4), pages 1-20, October.

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