Capital Flight and Growth of Nigeria’s Economy (1980-2023): An Autoregressive Distributed Lag (ARDL) Modelling

This study investigated the impact of capital flight on Nigeria’s economic growth from 1980 to 2023. Preliminary analyses, revealed that variables were stationary at level and first difference, I(0) and I(1), respectively. Given the data characteristics, the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration was applied. The results from the ARDL model confirmed a significant long-run relationship between capital flight and economic growth, indicating an inverse relationship in both the short and long run. Specifically, external debt exerted a negative effect on growth in the short run (-0.94) but turned positive in the long run (-0.86). Insecurity, with coefficients (-1.06) and (-4.76), had a consistently negative and statistically significant impact on economic growth in both the short and long run. Similarly, the exchange rate negatively influenced growth in the short run (-0.02) but showed a positive long-run relationship (0.002). The current account balance, on the other hand, had a positive effect on economic growth in both the short run (0.0024) and the long run (0.0003). The Error Correction Model (ECM) reparameterization of the ARDL framework indicated a speed of adjustment of 95%, which was statistically significant and correctly signed, suggesting a strong tendency toward long-run equilibrium. Based on these findings, the study recommends that the Federal Government of Nigeria adopt comprehensive measures to curb the drivers of capital flight—such as macroeconomic instability, institutional weaknesses, and external incentives—through sound economic policies, political stability, and institutional strengthening. Furthermore, the government should intensify efforts to combat insecurity by equipping security agencies with modern technology and incentives, ensuring effective protection of lives, property, and the overall social, political, and economic development of the nation.