Capital Flight versus Domestic Investment in Developing Countries: An Empirical Analysis from Nigeria
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Canadian Center of Science and Education
Abstract
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Capital flight is a challenge for many developing countries of the world. The problem is more acute in a country like
Nigeria where domestic investment has been severely affected. The study undertakes an empirical investigation of
the problem using variables of investment, exchange rates and others in a vector error correction mechanism and the
ordinary least regression analyses to test the level of significance of the impacts of each of the adopted variables.
The results indicate that capital flight has negative but insignificant impact on domestic investment in Nigeria. This
is as a result of the high level of capital flight or low level of investment undertaken over the years in the economy.
The basic variable involved in the two is the exchange rate which is significant in investment but insignificant in
capital flight. The paper recommends further floating of the exchange rate and transparency in its management. It
also recommends that policies to encourage autonomous investment by both private and public sector be put in
place.
Keywords
HB Economic Theory