Asymmetric effects of capital flight on domestic investment in Nigeria: evidence from non-linear autoregressive distributed lag model

Abstract

Economic theory prescribes that domestic investment is a decreasing function of capital flight. However, is there a possibility that reversals in capital flight might lead to a decline in investment levels in Nigeria? Put differently, is there a tendency for domestic investment to maintain a downward spiral, a ratchet effect, even in the face of lower levels of capital flight? Extant literature on capital flight in Nigeria is silent on this enquiry. This study is therefore a modest first attempt at investigating these possibilities. Employing the non-linear autoregressive distributed lag model, the study finds evidence of asymmetric impact of capital flight on investment undertaken at the national level. However, investment by subnational governments revealed the existence of symmetry, while overall, total public sector investments (by both States and Federal Governments) indicated the existence of asymmetric effects between positive and negative deviations of capital flight. The paper re-echoes the need for the strengthening of institutions and policy measures that go beyond the conventional in tackling capital flight.

Promoting Renewable Energy Consumption in Sub-Saharan Africa: How Capital Flight Crowds Out the Favorable Effect of Foreign Aid

“…Considering these new forms of energy would require, inter alia , both domestic and foreign sources of funding, of which, foreign aid, considered within the remit of this study is situated. Moreover, capital flight reduces the possibilities of domestic funding (Dachraoui and Sebri 2022; Effiom, Uche, and Otei 2022). In summary, the attendant financing of renewable energy necessitates a proper understanding of interactions between capital flight and foreign aid, as motivated by the present exposition, not least, because finance represents an important concern in prospects of renewable energy (Mazzucato and Semieniuk 2018).…”