Capital Flight and the Nigerian Economy

Abstract

The paper explores empirically the relative effect of capital outflows on the growth rate of GDP in Nigeria. To accomplish this task, three models of GDP growth rate were specified with each model incorporating a different measure of capital flight from Nigeria. The variables in the models were examined for possible co-integration. Research findings shows that capital flight impacts adversely on the growth rate of GDP and such growth rate effect of capital outflow is significant, capital control is insignificant in stimulating GDP growth rate in Nigeria, exchange controls are weak, industrial output is a veritable resource of GDP growth rate in Nigeria, public expenditure has significant positive impact on GDP growth rate in Nigeria and that the growth effects of domestic investment is insignificant in Nigeria. There is therefore the need for effective control of capital outflows. Also, there is an acute need to implement economic policies that can re-invigorate domestic investment and discourage capital flight in order to enhance economic growth in Nigeria.

Key Words: Capital flight, balance of payment approach, residual approach, bank deposit approach, Nigeria