Capital Flight and Domestic Investment in Nigeria: The Mediating Influence of Leadership System

Résumé

Capital flight has been identified as a major factor affecting domestic investment in less developed countries, especially the sub-Saharan nations of which Nigeria is part. Capital flight has over the years diminished the meagre resources that hitherto would have been invested in these developing countries to generate employment and accelerate economic growth and development. Unfavourable business climate, poor level of infrastructural development, macroeconomic instabilities, and political uncertainties are some of the factors responsible for capital flight. This study examined the moderating influence of the leadership system (LS) on the nexus between capital flight (CAPF) and domestic investment (DI) in Nigeria from 1981 to 2018 within the auto-regressive distributed lag (ARDL) framework. An inverse relationship was found between LS and DI both in the short run and long run. Furthermore, the interactive influence of capital flight and leadership system (CAPF*LS) revealed a positive and significant (at ten per cent) influence on DI. This study, therefore, recommends that concerted effort should be made to improve the quality of governance through the provision of basic infrastructure and the formulation and implementation of policies that will increase domestic investment and mitigate the level of capital flight from Nigeria.