Dynamic Empirical Analysis of the Determinants of Capital Flight in Nigeria

Abstract

The importance of capital flight and it’s determinants in Nigeria cannot be over emphasized
giving the need for capital towards the country’s development. However, it is worrisome of the rate
evasion of these capital which is contrary to economic theory. Questions are being raised on how
Nigeria can achieve the quest of development in the face of this rapid capital evasion. This study
therefore investigated on the determinant of capital flight in Nigeria. Recent data from World Bank
Development Indicators (WDI) were used employing the residual approach to measure of capital flight
in an autoregressive distributed lag (ARDL) model technique. Outcome from the research revealed
there is no short-run dynamics among the variables and previous levels of capital flight substantially
fueled more capital flight. Trade openness and exchange rate appreciation were found to be a substantial
means to reduce capital flight. Overall, the study revealed that external debt, inflation, foreign exchange
reserve, interest rate spread and political stability constituted the determinants of Nigeria’s capital
flight. The political regime was found not to have a substantial impact on the flight of capital. The study
therefor recommend among others, the avoidance of non-productive loans to reduce external debt,
appreciation of exchange rate and the increase in trade openness.