Capital Flight, Governance Quality and Domestic Investment in Nigeria

Abstract

In Nigeria, domestic investment has been notably fragile, largely due to ongoing capital flight. This study explores the role of governance quality in moderating the effect of capital flight on domestic investment in Nigeria from 1980 to 2024. Utilizing the Dynamic Least Squares estimation technique, we analyzed secondary data collected from the Bureau of Statistics, the Central Bank of Nigeria (CBN) Annual Statistical Bulletin, and the World Bank's World Development Indicators. Our findings indicate a positive correlation between both governance quality and the intervention of capital flight with domestic investment, while capital flight itself exhibits a negative relationship with it. Significant links were identified between capital flight, it's intervention, governance quality, and domestic investment; however, the relationship between governance quality and domestic investment was not statistically significant. This study concludes that capital flight has a meaningful impact on the level of domestic investment in Nigeria, underscoring the vital important of robust government institutions in managing capital outflows and reducing losses from illicit financial activities. Recommendations include implementing judicial reforms to address governance gaps that enable corruption, and enhancing collaboration and data sharing among the CBN, the Federal Inland Revenue Service, and the Nigeria Customs Service to effectively tackle illegal capital flight and revenue leakages.