Benue State University, Makurdi

Investigating the Nexus among Natural Resources, Foreign Direct Investment and Capital Flight in Nigeria: The Role of Institutional Quality

Douglas Terkume Akya, David Terfa Akighir Samuel Ogo Ominyi, and Emmanuel Tordue Kpoghul

Abstract

The study investigated the nexus among natural resources, foreign direct investment and capital flight in Nigeria and role of institutional quality in this relationship. Annual time series data from 1986 to 2022 were used for the investigation. The study utilized the Structural Vector Autoregressive model for the analysis. Finding of the study indicated that, natural resources exerts strong positive impact on foreign direct investment in Nigeria and foreign direct investment exerts positive impact on capital flight in the country. Also, the study concluded that, weak institutional quality spur capital flight in the country and strong institutional quality reduces capital flight in the economy. On the basis of the findings of the study, the following recommendations are made: Government should intensify efforts to create an enabling environment for profitable investment and offer foreign investors attractive incentives that can attract and retain foreign investment in the country. This can be done by ensuring that all the component of ease of doing business as stipulated by the World Bank such as: Starting a business; dealing with construction permits; getting electricity; registering property; getting credit; protecting minority investors; paying taxes; trading across borders; enforcing contracts and resolving insolvency are strictly adhered to in the country in dealing with foreign investors. The National Assembly should urgently make laws that regulate business operations in the country that enhance accountability, transparency, administrative efficiency and adherence to the rule of law to improve the Nigerian institutions. This can be done through reform implementation, capacity building. And good governance mechanisms, while reducing political unrest and insecurity in the country among others.

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