The Paradox of Capital Flight in Resource-Rich Nigeria: Consequences for the Oil And Gas Sector (1981 – 2022)

The global oil market is also shaped by several forces that impact the production and pricing of the commodity, or its output. The oil and gas sector is a capital- intensive sector but has suffered from capital flight. This study examines the impact of capital flight and its macroeconomic determinants on the oil and gas sector output in Nigeria from 1981 to 2022. Using the Autoregressive Distributed Lag (ARDL) Model, the research investigates the long-run and short-run effects of capital flight, external debt, exchange rate, inflation rate, interest rate, and tax revenue on the output of the oil and gas sector. The analysis is anchored on annual time series data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin and World Bank Development Indicators (WDI). The results of the ARDL bound test showed a significant F-statistic of 106.02, which rejects the null hypothesis of no co-integration, thus establishing a long-run equilibrium relationship between the oil and gas sector output and the macroeconomic variables. The ARDL model results revealed that in the short run, capital flight had a significant positive impact on oil and gas sector output, while external debt and exchange rates had negative impacts. Inflation rates and interest rates also exhibited mixed effects, with previous inflation showing a positive impact and current inflation a negative one. In the long run, capital flight maintained a significant positive effect on the sector's output, contrary to expectations from previous studies. Conversely, external debt, exchange rates, inflation, and tax revenue were found to negatively affect oil and gas sector output in the long run. Interest rates, however, had a positive long-run effect on the sector. The study concludes that capital flight, external debt, exchange rate, inflation rate, interest rate, and tax revenue play crucial roles in shaping the performance of Nigeria's oil and gas sector. It recommends policies aimed at controlling capital flight, managing external debt, stabilizing the exchange rate, and maintaining low inflation rates to enhance the productivity and sustainability of the oil and gas sector in Nigeria.