As being experienced in many developing countries, Nigeria has been experiencing confirmed capital flight which has been a problem believed to have adversely affected domestic investment. The existence of this problem is further accentuated by the financial globalisation process which has enabled capital to flow more freely than before between countries of the world. This study examined the relationship between capital flight in Nigeria and investment during the period of financial globalisation with data from 1970 to 2007. The main variables used were exchange rates, investment, Kaopen, financial savings, external reserves and interest rate differential among others. Ordinary Least Square (OLS) technique is used in determining the significant variables in investment and financial globalisation, while Vector Error Correction Mechanism (VECM) was adopted to determine the long-term relationship between investment and capital flight. The study finds that the rate of exchange is significant in investment and financial globalisation but not significant in World Bankâ€s and Dooleyâ€s estimates of capital flight. The different estimates of capital flight do not significantly impact negatively against investment though it has a long-term negative impact on external reserves of the country. The Dooleyâ€s definition of capital flight is found to more significant in the Nigeria case than the World Bankâ€s as its impact is negative on the investment, though not significant. This signifies the role of errors and omissions in distorting the estimates of capital flight in Nigeria. The other determinant of capital flight is the interest rate differential in the co-integrating equation. Unusually, the Kaopen measure is significant in the Nigeriaâ€s financial globalisation scenario, which calls for careful foreign exchange rate management to determine the rate of the exchange. The study recommends a cleaner floating of the domestic currency to reduce capital flight, the improvement of the business environment and an increase in the autonomous investment by both public and private sectors in the economy to induce other domestic investments, which will facilitate inflow of capital.
TABLE OF CONTENTS
Title and Cover Page - - - - - - - - Certification - - - - - - - - - .i Authorization - - - - - - - - - - .ii Dedication - - - - - - - .iii Acknowledgment - - - - - - - - - ..iv Table of Contents - - - - - - - - - .vii List of Tables - - - - - - - - xii List of Figures - - - - - - - .xiii Abstract - - - - - - - - - .. - - xiv CHAPTER ONE: INTRODUCTION 1.1 Background to The Study - - - - - - - ..1 1.2 Statement of the Problem - - - - - - - - 5 1.3 Objectives of the Study - - - - - - - . - .7 1.4 Research Questions - - - - - - - - .8 1.5 Statements of Hypotheses - - - - - - - .9 1.6 Significance of the Study - - - - - - - ..9 1.7 Scope of the Study - - - - - - - - ..11 1.8 Outline of the Study - - - - - - - - .11
CHAPTER TWO: REVIEW OF LITERATURE 2.0 Introduction - - - - - - - - - .13 2.1. CAPITAL FLIGHT - - - - - - - - ..14 2.1.1 Conceptual and Definitional Issues in Capita - - - - - ..14 2.2 CAUSES AND ROUTES OF CAPITAL FLIGHT - - - - - 18 2.3 Capital Flight and Capital Flows - - - - - - , - 21 2.3.1 Public and Private Wealth or capital - - - - - - ..22 2.3.2 Capital Flight and Wealth of a Country - - - - - - .23 2.3.3 Capital Accumulation or Formation - - - - - - 24 2.3.4 Portfolio Theory in Capital Flight - - - - - - - 26 2.3.5 Risk and Uncertainty in Capital Flight - - - - - - 27 2.4 LEGAL AND ILLEGAL CAPITAL FLIGHT - - - - - 28 2.5 RISKS AND CORRUPTION - - - - - - - .31 2.5.1 Macroeconomic Risks - - - - - - - - 31 2.5.2 Political Risks - - - - - - - - - 32 2.5.2 Corruption and capital flight - - - - - - - .33 2.5.3 IMF on Governance Issues and Corruption - - - - - ..35 2.5.4 Corruption Control and Freedom of Information (FOI) Law - - - - 36 2.5.5 Private Banking Services for Flight Capital - - - - - ..37 2.6. INVESTMENT - - - - - - - - .38 2.6.1 Definitions of Investment - - - - - - - ..38 2.6.2 Domestic Investment - - - - - - - .. - 39 2.6.3 Review of Empirical studies - - - - - - . - - 45 2.6.4 Sources and Determinants of Domestic Investments - - - - ..47 2.6.5 Measurements and Models - - - - - - - 51 2.6.6 Foreign Private Investment - - - - - - .. - .52 2.6.7 International Capital flows - - - - - - - 56 2.6.
