Capital Flight, Financial Stability and Nigerian Economic Growth
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Date
2023-12
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Lead City University
Abstract
Achieving the projected economic growth rate has remained a critical determining factor of economic prosperity and sustainability for many nations globally. This is because the socio- economic wellbeing of the State-players including the citizen depends on the attainment of the economic growth rate. While developed economies have made it a habit of consistently attaining significant economic growth rate which result in socio-economic benefit for the State and their citizen, Nigeria seems to be struggling in setting realistic economic growth rate and in its’ attainment. This weak Nigeria’s economic growth rate and its attendant consequences on the citizen raise some contextual issues on capital flight and financial stability. Hence, on the strength of the purchasing power parity theory and debt overhang theory, this study examined the effects of capital flight and financial stability on Nigerian economic growth. The study adopted an ex-post facto research design by utilizing secondary data obtained from the CBN Statistical Bulletin, NBS, IMF and World Bank, using time series data from 2002 to 2021 and annual reports of eight selected financial institutions in the category of international authorization in Nigeria. The study adopted ordinary least square regression analysis to test the hypotheses formulated in the introductory chapter. The findings of the study revealed that capital outflow (CO) has a negative relationship with Nigerian economic growth and the effect is significant (ꞵ = -0.289965; P-Value = 0.006). External debt (ED) has a negative correlation with Nigerian economic growth and the effect is
insignificant ( ꞵ = -0.088933; P-Value = 0.7899). External reserve (ER) has negative relationship with Nigerian economic growth and the effect is significant (ꞵ = -57032.05; P- Value =0.0329). Exchange rate (EX) has a negative correlation with Nigerian economic growth and the effect is insignificant ( ꞵ = -0.235292; P-Value = 0.422). Return on asset (ROA) has a negative relationship with Nigerian economic growth and the effect is significant (ꞵ = -0.051184; P-Value = 0.0390). Non-performing loan (NPL) has a negative correlation with Nigerian economic growth and the effect is insignificant (ꞵ = -0.016001; P- Value =0.4983). This study concluded that capital flight and financial stability when managed appropriately hold potential to enhancing Nigerian economic growth. The study recommended that government at all levels must provide friendly and enabling environment through the availability of infrastructural amenities needed to encourage investments that will bring more capital inflows from foreign countries. Likewise, there must be a limit on foreign borrowing tendencies of government at all levels. In addition, foreign borrowing must be limited to only infrastructural development desires of the country. Moreover, government should establish a steady exchange rate regime capable of encouraging capital inflows into the country and boost Nigeria’s financial stability. Nigeria Government should stop importation of petroleum products into the country and fix all the four (4) refineries in the country to reduce foreign currency spent on importation of petroleum products. The current efforts designed at checkmating loan defaults in the banking system through the application of the global standing instruction (GSI) regulations should be improved upon, sustained, and
extended to non-individual customers of financial institutions.
Keywords: Capital flight, Capital outflows, External reserve, External debt, Exchange rate, Financial stability, Non-performing loan, Real gross domestic product, Return on asset.
Word Count: 500.
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Keywords
Capital flight, Capital outflows, External reserve, External debt, Exchange rate, Financial stability, Non-performing loan, Real gross domestic product, Return on asset
Citation
Kate Turabian