Trade misinvoicing and domestic resource mobilization in Nigeria

Abstract

Purpose Mobilizing domestic resources has been a daunting task for the Nigerian government given its growing fiscal responsibilities and the limited domestic resources at its disposal. However, little is known empirically about the role trade misinvoicing plays in this regard. Hence, this study evaluates the effect of trade misinvoicing on domestic resource mobilization in Nigeria. Design/methodology/approach Sourcing annual data spanning 1981–2018 on key variables of interest, this study adopts the Dynamic Ordinary Least Squares (DOLS) estimation method to evaluate the effect of trade misinvoicing on domestic resource mobilization in Nigeria. Findings In conformity with extant studies, the result reveals that trade misinvoicing adversely affects domestic resource mobilization. It also showed that domestic resources are highly sensitive to the dynamics of trade misinvoicing in Nigeria. Other determinants of domestic resource mobilization in Nigeria include public debt, official development assistance, trade openness and inflation. Practical implications The study suggests the need to take expeditious and pragmatic actions against the rising tides of trade misinvoicing in Nigeria with a view to improving the volume of domestic resources required for financing development objectives. This will facilitate the achievement of the Sustainable Development Goals (SDGs) and enable Nigeria to maximally enjoy gains from trade. Originality/value There is an overwhelming evidence on the effect of foreign capital inflows on the Nigerian economy but, little is known about the effects of foreign capital outflows. Specifically, there is a dearth of studies on the effect of trade misinvoicing on domestic resource mobilization, particularly for Nigeria. Therefore, this study fills this knowledge gap by evaluating the effect of trade misinvoicing on domestic resource mobilization in Nigeria.

Growth effect of trade misinvoicing in Sub-Saharan Africa: the role of governance

“…The amount of financial resources leaving the confines of SSA partly explains the region’s slow economic progress. This result corroborates earlier findings such as Afolabi (2022a, 2023), which showed that trade misinvoicing adversely affect economic growth through the government revenue and domestic investment channels. Similarly, it parallels the view of Podder (2022), who argued that trade misinvoicing has corrosive effects on macroeconomic performance as it reduces government revenue base, lowers foreign exchange earnings, depletes external reserve and, ultimately, stifle economic growth.…”

“…Onogwu (2019), who used 2005-2014 to analyse the development effect of IFFs, also found that IFFs drain the limited potential development funds in Nigeria. Afolabi (2023) supported this notion by showing that trade misinvoicing hampers domestic resource mobilisation and attenuates Nigeria's economic growth. Mwaura and Olweny (2020) also examined the growth effect of IFFs in Kenya for the period covering 2013-2018.…”

“…Thus, the estimate of trade openness could either be positive or negative, as SSA countries have a mix of current account surplus and deficit. Past studies provided overwhelming empirical evidence that IFFs, including trade misinvoicing, cripple government revenue mobilisation ratio and attenuate economic growth (Ngwakwe, 2015;Afolabi, 2022aAfolabi, , 2023. It is, therefore, expected that the estimate of trade misinvoicing will be negative.…”

The Moderating Effect of Digitalisation on the Relationship between Corruption and Domestic Resource Mobilisation: Evidence from Developing Countries

“…However, having met the pre-conditions for digitalisation to mitigate the impact of corruption on DRM, the existence of a turning point cannot be disregarded. To address this, the point at which the impact of digitalisation dominates and becomes positive was calculated using equation (6). Although somewhat simplistic, the proposed approach involves solving for 𝑙𝑛𝐷𝑖𝑔 ̅̅̅̅̅̅̅̅ as outlined below:…”

Does Military Spending Crowd-Out Domestic Investment? Evidence from Nigeria

“…On the other hand, given the low revenue base of the Nigeria government, the government has been compelled to increase the country's debt stock to finance its rising military expenditure and annual budget. Thus, Nigeria's debt profile (debt from both domestic and international creditors) together with its associated cost of debt servicing poses critical threats to domestic resource mobilization for investment and growth imperatives (Onyele and Nwadike, 2021;Afolabi, 2022aAfolabi, , 2023.…”