AN INVESTIGATION OF THE RELATIONSHIP BETWEEN CAPITAL FLIGHT AND EXTERNAL DEBT IN NIGERIA 1970 – 2002
AN INVESTIGATION OF THE RELATIONSHIP BETWEEN CAPITAL FLIGHT AND EXTERNAL DEBT IN NIGERIA 1970 – 2002
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Date
2006-09
Authors
YOHANNA, AKOS PERRY
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Abstract
Nigeria’s huge external debt burden has been a major obstacle to economic
growth since a huge amount of foreign exchange is devoted to debt servicing
annually. The growth of external debt stock and service has reached a level where it
constitutes a threat to the provision of basic needs, socioeconomic development and
poverty alleviation programmes of the federal government. It also encourages
capital flight
This thesis investigates the relationship between capital flight and external
debt in Nigeria in the period 1970-2002 It also explores the conceptual issue in capital
flight, emphasizing several dimensions of capital flight . It also discusses the
possibility of halting capital flight in order to promote economic growth in Nigeria. .
An econometric test was conducted, a stationary test was carried out prior to
carrying out causality test. Ordinary least squares (OLS) was used for estimation of
parameters.
The results of stationary test indicated that data were stationary at levels for
capital flight and terms of trade. For external debt, foreign exchange reserve, inflation,
exchange rate, interest rate and domestic investment data were stationary at 1st
difference. For gross domestic product, it was stationary at 2nd difference. The
causality tests revealed that a bi-directional relationship exists between capital flight
and external debt. This implies that external debt facilitated capital flight and vice
verse. However, the strength from capital flight to external debt was weaker than from external debt to capital flight. It implies that, programmes to reduce external debt
should be well looked into if capital flight is to be reduced.
The OLS results indicated that capital flight tends to fall with increase foreign
reserve, interest rate, direct investment, gross domestic product growth rate. Also
capital flight tends to rise with increase in exchange rate misalignment, external debt,
political instability, inflation and deterioration in terms of trade. .
It is therefore recommended that, government should articulate good debt
management polices, reform the economy and reduce external debt. It should also
design policies that could increase foreign reserve, interest rate, direct investment and
ease constraints in the financial system. Government should also design policies to
reduce exchange rate misalignment, political instability, inflation and deterioration in
terms of trade in order to reduce capital flight.
Description
BEING A THESIS SUBMITTED TO THE POST
GRADUATE SCHOOL, A.B.U. ZARIA, IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR THE
AWARD OF THE DEGREE OF MASTER OF SCIENCE
(ECONOMICS)
DEPARTMENT OF ECONOMICS,
FACULTY OF SOCIAL SCIENCES
AHMADU BELLO UNIVERSITY
ZARIA – NIGERIA
SEPTEMBER, 2006.
Keywords
INVESTIGATION,, RELATIONSHIP,, CAPITAL FLIGHT,, EXTERNAL DEBT,, NIGERIA 1970 – 2002