Original Research
External debt and capital flight in Nigeria: Is there a revolving door?
Submitted: 25 September 2014 | Published: 20 October 2014
About the author(s)
OT Ajilore, Obafemi Awolowo University, NigeriaFull Text:
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Using the residual method of capital flight estimation, this paper estimates Nigerian capital flight over the period 1970 - 2001 and finds a close correlation between external debt and capital flight flows. This phenomenon suggests a paradoxical revolving door of a bi-directional flow of capital, i.e. where capital enters the country in the guise of external borrowing and simultaneously slips out of the country as private capital flight. The research question addressed by this paper is whether such a financial revolving door relationship exists in Nigeria, just as previous empirical researches had established in a number of countries. The paper utilises a simultaneous equation model and three stage least square estimation technique (3SLS), in addition to two-way Granger causality tests, to obtain statistical evidence that confirms the existence of a financial revolving door relationship between the two endogenous variables. In addition, existence of stronger causality from debt to capital flight is instrumental in showing that growing public deficit and the resulting increase in external debt is being used as a transfer mechanism for capital flight.
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Journal of Business Economics and Environmental Studies vol: 10 issue: 1 first page: 29 year: 2020
doi: 10.13106/jbees.2020.vol10.no1.29