Musibau Hammed Oluwaseyi


Capital flight from Nigeria has become a trending macroeconomic issue within the country. This is as a result of its implications on economic growth due to the fall in investment as a result of scarce capital created by persistent capital flight. On estimates, Nigeria losses $22billion to capital flight annually as a result of bad economic system alone; hence the study analyses the impacts of capital flight on Nigeria’s economic growth. The investment portfolio theory is adopted in the study. This posits that an investor considers the real returns from investment in the determination of the retainment of wealth, or otherwise, in a country. Thus, the real interest rates differential has been identified as a main determinant of capital flight in an economy. This study employs the vector error correction mechanism (VECM) and granger causality test to analyse the causality between capital flight, interest rates differential, political instability and economic growth; using available data between 1980 and 2014. The results show that current year capital flight is influenced by its previous year values, and that there is a negative relationship between capital flight and Nigeria’s economic growth. Similarly, the results depict that a positive (and significant) relationship exists between capital flight and interest rates differential, explaining that the higher risk-adjusted returns abroad influence domestic capital flight. Also, there is uni-directional causality running from economic growth to capital flight; while there is independence among other variables.


Capital Flight, Interest Rates Differential, Economic Growth, VECM

Full Text:




Ajayi, S. Ibi. (1992). An Econometric Analysis of Capital Flight from Nigeria. World Bank Working Paper Series, No.993 (Washington DC, World Bank)

Ajayi, S. Ibi (1995). Capital Flight and External Debt in Nigeria. African Economic Research Consortium Research Paper, No.35.

Ajayi, S. Ibi. (1997). An Analysis of External Debt and Capital Flight in the Severely indebted Low Income Countries in Sub-Saharan Africa. Research Department, International Monetary Fund Working Paper 68 (Washington DC).

Ajayi, S. I., & Ndikumana, L. (Eds.). (2014). Capital Flight from Africa: Causes, Effects and

Policy Issues. Oxford: Oxford University Press.

Ajilore, T. O. (2010). An Economic Analysis of Capital Flight from Nigeria. International Journal of Economics and Finance 2(4): 89

Akanbi, O. B. (2015). An Econometric Approach to Short and Long Run Analysis of the Nigerian Economy-Capital Flight in Nigeria. International Journal 83.

Boyce, J., & Ndikumana, L. (2008). New Estimates of Capital Flight from Sub-Saharan African Countries: Linkages with External Borrowing and Policy Options. Working Paper Series, No. 166

Boyce, J., and Ndikumana, L. (2011). Africa's Odious Debts: How Foreign Loans and Capital Flight Bled a Continent. Zed Books.

Boyce, J.K., & Ndikumana, L. (2012). Capital Flight From sub-Saharan African Countries:

Updated Estimates, 1970 – 2010. PERI Research Report.

Collier, P., Hoeffler, A., Pattillo, C. (1999). Flight Capital as a Portfolio Choice. IMF Working Paper: 99/171

Davies, V.A.B. (2008). Postwar Capital Flight and Inflation. Journal of Peace Research, 45, 519-537.

Dickey, D. A., & Fuller, W.A. (1979). Distribution of the Estimators for Autoregressive Time-

Series with a Unit Root. Econometrica, Vol. 74, No. 366, pp. 427-31.

Engle, R.F., & Granger, C.W. (1987). Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica, 55(2), 251-276. doi. 10.2307/1913236.

Fofack, H., & Ndikumana, L. (2010). Capital Flight Repatriation: Investigation of its

Potential Gains for Sub-Saharan African Countries. African Development

Review, 22 (1), 4-22.

Granger, C.W.J. (1969). Investigating Causal Relations by Econometric Models and Cross Spectral Methods. Econometrica, 35, pp. 424-38

IMF (2015). World Economic Outlook. Washington DC: IMF.

Johansen, S. (1988). Statistical Analysis of Cointegration Vectors. Journal of Economic Dynamics and Control, 12(2), 231-254. doi. 10.1016/0165-1889(88)90041-3.

Johansen, S., & Juselius, K. (1990). Maximum Likelihood Estimation and Inference on Cointegration—With Applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210. doi. 10.1111/j.1468-0084.1990.mp52002003.

Lawanson O. A. (2007). An Econometric Analysis of Capital Flight from Nigeria: a Portfolio Approach. Africa Economic Research Consortium. Nairobi. Paper No 166.

NBS (2016): National Bureau of Statistics Inflation Figures, assessed via:

Ndikumana, L. (2014): International Tax Cooperation and Implication of Globalisation. CDP Background Paper No. 24, New York: UNDESA.

Ndikumana, L., & Sarr, M. (2016). Capital flight and Foreign Direct Investment in Africa. United Nations University World Institute for Development and Economic Research

Nkurunziza, J. D. (2014). Capital Flight and Poverty Reduction in Africa. Political Economy Research Institute.

Phillips, P.C., & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika, 75(2): 335-346.

PTS. (2015). The Political Terror Scale. Retrieved 5/31/2016

Schneider, B. (2003). Measuring Capital Flight: Estimates and Interpretations. Overseas

Development Institute, London.

Sims, C. A. (1980). Macroeconomics and reality: Modelling Economic Series. Clarendon Press, Oxford.

The Vanguard, Nigeria. (2014). Nigeria losses N3.8 trillion to trade misinvoicing. Accessed through: Nigeria losses N3.8 trillion to trade misinvoicing

The Vanguard, Nigeria. (2015). Capital flight: Economy hard hit by $22.1bn outflow in 5 weeks’, Accessed through: hard hit by $22.1bn outflow in 5 weeks

This Day, Nigeria. (2016). Lawmaker Decries $2bn Annual Capital Flight, Weak Education Policy. Accessed via: decries $2bn annual capital flight, weak education policy.

World Bank. (1985). Case Study: Mexico in Capital Flight and Third World Debt, edited by D.R. Lessard, & Williamson, J. (Washington DC: Institute for International Economics).

World Bank. (2015). World Development Indicators (various years), Washington D.C.


  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.