Download the complete economics project topic and material (chapter 1-5) titled ECONOMETRIC ANALYSIS OF CAPITAL FLIGHT IN DEVELOPING COUNTRIES: A STUDY OF NIGERIA here on See below for the abstract, table of contents, list of figures, list of tables, list of appendices, list of abbreviations and chapter one. Click the DOWNLOAD NOW button to get the complete project work instantly.


Download the complete economics project topic and material (chapter 1-5) titled ECONOMETRIC ANALYSIS OF CAPITAL FLIGHT IN DEVELOPING COUNTRIES: A STUDY OF NIGERIA here on See below for the abstract, table of contents, list of figures, list of tables, list of appendices, list of abbreviations and chapter one. Click the DOWNLOAD NOW button to get the complete project work instantly.



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Poor macroeconomic policy, corruption and economic mismanagement have triggered capital flight in Nigeria. Capital flight portends great danger to any nation as it represents foregone investments, reduction of a country’s tax base, and a contributor to debt problem among others. Based on this, this paper investigates the determinants of huge capital flight (with its constraints on economic growth) in Nigeria so as to make meaningful policy contributions on strategies of minimizing capital flight and its attendant impacts.

The study investigates the linear determinants of capital flight in Nigeria utilizing the ordinary least squares (OLS) and the error correction method (ECM). The study found among other things, the validity of the portfolio theory which postulates how risk-averse investors can build portfolios in order to optimize or maximize expected returns given a level of market risk. This is confirmed in the international realm as private sector engaged in international arbitrage. Capital flight is caused by the interest rates deferential both in the short and in the long run. In addition, exchange rate depreciation significantly increases capital flight in Nigeria. Output growth which measures the domestic opportunity cost of flight in Nigeria is negative and significant in the short-run indicating that non performance of domestic resources can trigger capital flight. Lastly, Dooley’s (1994) debt-flight revolving door which observed that unrecorded capital outflows from developing countries take place simultaneously with external borrowing is empirically found true in Nigeria.

Based on this study, Nigeria’s capital flight is analyzed in a new context utilizing a different but innovative model and econometric techniques. It is of tremendous value to researchers on related topic and an effective policy guide to policymakers in developing countries of the World.




Recently, there is rapid growth and mobility of international capital with some attendant risks and benefits. One of such risks is that of fuelling capital flight. According to Cooper and Hardt (2000) capital flight entails flow of financial assets resulting from the holder’s perception that capital is subjected to inordinate level of risk due to devaluation, hyperinflation, political turmoil, or expropriation if retained at home in domestic currencies.  The owner of funds in this hostile environment is seeking a safe haven for his funds. Ndikumana and Boyce (2002) also defined capital flight as residents’ capital outflows, excluding recorded investment abroad.

Capital flight is different from capital export which is a normal economic phenomenon, subject of course to regulation and not posing danger to the national economy.  It can foster export growth and generation of employment in addition to the provision of solution to other national economic problems (Grigoryev and Kosarev 2000). Causes of capital flight according to Ajayi (2005) include varying risk perception, exchange rate misalignment, financial sector constraints and repression, fiscal deficits, weak institutions, macroeconomic policy distortions, corruption and extraordinary access to government funds among others.

A hypothesis, was proposed by Khan and Ul Haque (1985). They argued that the perceived risk of investment in developing countries is higher than that obtainable elsewhere. Residents of developing countries can therefore expect risk-free compensation for the additional risk on their investments at home. Khan and Ul Haque (1985) describe this risk as “expropriation risk.” That is, domestic residents face the possibility of their assets being expropriated by the government. Expropriation may include outright nationalization, taxes, or exchange controls, whereas the risk on similar assets held abroad is negligible. An exogenous or policy-induced shock that raises the perceived level of risk could therefore result in capital flight; at the same time the government would be forced to go abroad to obtain financing to cover not only the original imbalance but also the loss of resources through capital flight.

The size of capital flight in developing countries is assuming a serious dimension and posing huge threat to sustainable growth especially in Africa. According to Boyce and Ndikumana (2001), many poor countries are losing more resources via capital flight than through debt servicing. They estimated that Africa is a net creditor to the rest of the world because the private asset held abroad as measured by accumulated capital flight is far more than the external debt stock of Africa.  Their conclusion based on this is that efforts of donor agencies in increasing savings in developing countries may be ineffective as capital flight leads to a loss of scarce domestic savings. Capital flight in Nigeria is more severe than it is elsewhere in other Sub-Saharan Africa countries. Reliable and comprehensive data does not exist on the magnitude of capital flight from countries of low-income Africa, but it is believed that capital flight particularly from Nigeria has been substantial.  According to Chang and Cumby (1990, 19) net capital outflows from Sub-Saharan Africa was estimated at US$40 billion between 1976 and 1987 and this figure is identical to flows from some Latin American countries such as Argentina, Brazil or Venezuela.  Capital flight from Nigeria alone is estimated to be about US$17.5 billion, with US$11 billion in outflows between 1985 and 1987 alone.  (See also, similar conclusion by Hermes and Lensink 1990).

Capital Flight represents foregone investment in manufacturing plants, infrastructure, and other productive capacity. In addition, capital flight escapes governments’ taxation thus depriving nations of revenues capable of contributing to fiscal deficits and constraining expenditures on social welfare programmes, defence and infrastructure development.  In addition, the magnitude of tax evasion due to capital flight by the highest income class (an opportunity not open to middle class and the low income class) accelerates income disparities and aggravates social instability.

Shortages of investment funds and tax revenues associated with capital flight have led to massive building of foreign debt requiring countries to seek more external funds thereby aggravating the debt crisis. Capital flight has been eroding Nigerian economy of critical financial resources that could be utilized for building capital formation, investment, tax revenues, restructuring pensions and other social infrastructures etc. over the years. Ojo (1992) made a huge cumulative estimate of capital flight from Nigeria of more than US$35.9 billion between 1975 and 1991 alone.  Hermes and Lensink (1992) estimate capital flight from six sub-saharan African countries (including Nigeria) from 1976 to 1989 and found that Nigeria has the largest incidence of capital flight of US$21 billion.  This represents 60 percent of the combined capital flight figure of the six countries in African Sub-region.

According to Ajayi (1992) while Several Studies have been carried out on capital flight in Latin American countries, few studies have been done on the causal factors, measurements, conduits, economic determinants and empirical investigations and consequences of capital flight in Nigeria. Based on the magnitude of impact of capital flight on economic performance in Nigeria and the lack of adequate research on capital flight in Nigeria, I decided to conduct this research on the causal factors of capital flight in Nigeria by utilizing thorough econometric technique (Error correction model). This study will be of tremendous use to academics and policymakers especially in developing countries Worldwide.




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