Capital Flight and Poverty Reduction in Nigeria

Abstract

The literature from development economics asserted that two major spillover effects of the prevalence of capital flight and low rate of investment in developing economies are the persistent increase in unemployment and absolute poverty. Since an increase in the poverty rate can be viewed in terms of forgone private and public investment in some poverty reducing programmes like education, health intervention and job creation. Thus, this study investigates the interplay between capital flight and poverty reduction in Nigeria using secondary data covering the period between 1981 and 2017. This study employs the Augmented Dickey Fuller (ADF) test; Philip Perron (PP) test; Kwiatkowski, Phillips, Schmidt and Shin's (KPSS) all forms of unit root tests; Johansen test for co-integration and Dynamic Ordinary Least Square (DOLS) for long run estimates. The study found that an increase in poverty level in the country would be preceded by raising capital flight coupled with increasing dependence ratio and decline in economic growth rate. In this scenario, the effect of a single digit economic growth is dissipated once the circle continues unabated. Consequently, this study recommends that the Federal Government of Nigeria through the relevant financial authorities should enforce regulation against illicit flow of capital and prosecute offenders. The Federal Government must be seen to support the agency efforts against illicit flow in the country.