Volume 4, Number 2

An Examination of the Effect of Capital Flight on Selected Macroeconomic Variables in Nigeria: A Cointegration & Causality Testing

  Authors

OJIYA, Emmanuel Ameh¹, ZHEGUM, Joseph M.² and AMADI, Uchechukwu³ , ¹Federal University Wukari, Nigeria, ²Modibbo Adama University of Technology, Nigeria and ³Federal University Wukari, Nigeria

  Abstract

The challenge posed by capital flight have always engaged attentions of economists, policymakers and successive governments in Nigeria because it has denied the country of enormous resources which would have been used to accelerate the rate of economic growth and improve on the welfare of the citizens. It is in the light of this that this study empirically examines the effect of capital flight on selected macroeconomic variables in Nigeria using a cointegration and causality testing approach. Employing annual time series data sourced from the Central Bank of Nigeria statistical Bulletin (2015) and World Bank Development Indicators database (2015), variables employed in the model (capital flight, gross domestic product, investment and unemployment) were stationary as well as possessing longrun relationship within the study period. From the findings of this study, we conclude that capital flight has significant negative influence on economic growth and unemployment in Nigeria between 1999–2015. Consequently, it was recommended among others that government should create an enabling environment for investment to thrive by as much as possible curtailing the incidence of terrorism by Boko Haram as witnessed in the North, kidnapping that is rampant across the country and militancy by diverse interest groups in the Niger-Delta region. Secondly, capital flight occurs when unscrupulous elements, corrupt leaders and bureaucrats siphon scarce capital resources from their countries to advanced countries. These funds are therefore, not available for investment at home leading to decline in aggregate investment, low economic growth, thus reducing the rate of employment. Since there is a cause-and-effect relationship between capital flight and growth, government should therefore fund and strengthen the different anti-corruption agencies to adequately fight the menace of corruption and official thievery that has become a norm in Nigeria.

  Keywords

Capital Flight, VECM, Cointegration and Causality