Department of Banking and Finance, Rivers State University
This study examined the effect of capital flight on the growth of Nigeria financial market. The objective was to investigate the effect of capital flight indicators on the growth of financial market. Time series data were sourced from Central Bank of Nigeria Statistical bulletin and publications of Nigeria Bureau of Statistics. Financial market growth was the dependent variable while debt servicing, net official financing, depreciating naira exchange rate, net private investment and Nigeria investment abroad were proxies for independent variables. Ordinary least square methods of cointegration, granger causality test, unit root test and Vector error correction model. The study found that 70.9 percent variation on the growth of Nigeria financial market can be traced to variation on the capital flight indicators. Exchange rate variation has positive and significant effect; debt servicing has positive and no significant effect; net official financing has positive and no significant effect; Nigeria foreign investment abroad has positive and no significant effect; while net foreign private investment has negative and no significant effect on growth of Nigeria financial market. From the findings the study concludes that there is significant relationship between capital flight and growth of Nigeria financial market. The study recommends that government should always engage in the borrowing of funds for capital investments that are expected to help the countries long term vision. there is need to ensure that the stock market is sound by promoting stability in the macroeconomic environment to enhance investors’ confidence and attract both domestic and foreign investors to hold their equity investments in the Nigerian stock market. There is need to improve the infrastructural facilities in the Nigerian stock market to match or even beat what is obtainable abroad.
Keywords: Capital Flight, Growth and Financial Market