Impact of Capital Flight on Exchange Rate and Foreign Reserves in Nigeria

This study examined the influence of capital flight on exchange rate and foreign reserves in Nigeria using annual times series data from 1981 to 2022. Two models were estimated and analysed in the study. Methods of data analysis were Autoregressive Distributive Lag (ARDL) and Ordinary Least Squares (OLS) techniques; which were informed by the order of integration of the variables in each of the models. Empirical results revealed that capital flight had a positive and significant relationship with exchange rate both in the short-run and in the long run; implying that capital flight led to exchange rate depreciation within the period under study. The empirical results also showed that capital flight had a negative and significant relationship with foreign exchange reserves both in the short-run and in the long-run; implying that capital flight led to depletion of foreign exchange reserves stock in Nigeria within the period under study. It was concluded that capital flight hinderedmacroeconomic stability in the country through its negative impact on the value of naira and foreign exchange reserves. To curtail capital flight and stimulate macroeconomic performance in Nigeria, it was recommended among others that the government should enact and implement stricter anti-corruption and anti-money laundering policies including public prosecution and incarceration of those who indulge in fiscal corruption to serve as deterrent to others.