The Definition Of Capital Flight Economics Essay

Since the debt crisis in the early 1980s, there has been voluminous literature devoted on the escapes of occupants capital in response to alterations in domestic policies and political instability. This phenomenon of immense capital escapes was termed as “ capital flight ” . With clip, capital flight became to be regarded as an index of a state ‘s economic state of affairs.

The purpose of this chapter is to hold an overview of relevant literature on capital flight. The chapter is divided into two chief parts, as follows: –

Theoretical facet

Empirical facet.

2.2 Theoretical facet

This subdivision looks at the assorted definitions of capital flight, its determiners and the possible methods for mensurating its magnitude.

2.2.1 Definition of capital flight

It is deserving indicating out that there is ample contention on the definitions of capital flight. While some analysts view capital flight as a normal capital escape, others consider it as an unnatural capital escape. In general, capital escape from developed states is regarded as foreign investing while the same activity is referred to as capital flight when undertaken by developing states ( Ajayi 1995, p.3 ) .

One possible account for this duality is the belief that investors from developed economic systems are seen as reacting to chances abroad while investors from developing economic systems are said to be get awaying the high hazard perceived at place. It can non be denied that normally investors, whether from developed or developing economic systems, base their determinations on the comparative hazard and return at place and abroad. Therefore, investors around the universe are rational and will therefore seek for better risk-return tradeoff and portfolio variegation.

Capital flight is referred as “ the reported and unreported acquisition of foreign assets by the non-bank private sector and elements of the populace sector ” by Morgan Guaranty Trust Company ( 1986 cited Ajayi 1995, p.7 ) . Nowadays, capital flight can be viewed as an illegal dealing in state of affairss where bargainers falsify their trade paperss in order to maintain their capital abroad ( Schneider 2001, p.9 ) . By making so, they generate capital flight through export under invoicing and import over invoicing.

For others, capital flight is the non coverage of income earned from claims on non occupants, in the balance of payment system in order to get away the control of the place authorities ( Dooley and kletzer 1994, p.5-6 ) .

Short term private capital escape is besides regarded as capital flight. The latter absorbs hot money that responds to political and fiscal crisis, heavier revenue enhancements, possible tightening of capital control, considerable devaluation of domestic currency and existent or extroverted hyperinflation ( Cuddington 1986 cited Machochekanwa 2007, p.9 ) . This reading is besides found in Schneider ( 2003, p.1 ) who argues that capital flight is the flow of occupants capital from domestic state to another due to political and economic hazard.

It can be seen from the above that there are legion definitions of capital flight. Presents, with the increased globalisation, the fiscal markets are more contributing to the motion of capital therefore doing the phenomenon of “ capital flight ” . Nevertheless, it is by and large accepted that capital flight represents the escape of capital from domestic fiscal market in order to hedge losingss.

2.2.2 Measurement of capital flight

Numerous definitions of capital flight as seen in the old subdivision, give rise to different methods to mensurate this phenomenon in regard of informations handiness and the methodological analysis used by different states. The undermentioned steps are found in the literature: the residuary method ; the Dooley method ; the hot money method ; the trade misinvoicing method and the plus method ( Claessens and Naude 1993, p.2 ) .

Residual Method

This is the chief step of capital flight proposed by the World Bank ( 1985 ) . The residuary step, besides known as the wide step is an indirect attack to gauge capital flight. Outflow of capital is equal to the differences between beginnings of financess ( that is, net additions in external debt and net influx of foreign investing ) and uses of these financess ( that is, the current history shortage and add-ons to foreign militias ) .

Algebraically, capital flight is expressed as follows:

KFr = I”ED + FDI – CAD – I”FR

Where:

KFr stands for capital flight, I”ED is the alteration in the stock of gross external debt, FDI is the net foreign investing influxs, CAD is the current history shortage and I”FR represents the alteration in the stock of official foreign militias.

The above attack is changed somewhat by Morgan Guaranty Trust ( 1986 cited Claessens and Naude 1993 ) . The alteration in short term foreign assets of the domestic banking system ( I”B ) is taken into consideration. This extra point is deducted from the residuary method ( KFr ) , demoing that the banking system has nil to make with capital flight as shown below:

KFr = I”ED + FDI – CAD – I”FR – I”B

Dooley Method

The Dooley method seeks to divide the legal and illegal capital flows. Hence, under the Dooley method, capital flight is equal to that sum of income from foreign assets which are non reported to place state. Following Hermes et Al ( 2002, p. 4 ) , harmonizing to the Dooley method capital flight is calculated as shown below:

TKO = FB + FDI – CAD – I”FR – EO – I”WBIMF

Where:

TKO is the entire capital escapes, FB is the foreign adoption as reported in the BOP statistics, EO is net mistakes and skip and I”WBIMF shows the difference between the alteration in the stock of external debt reported by the World Bank and foreign adoption reported in the BOP statistics published by the IMF.

The stock of external assets related to reported involvement net incomes is:

ES = INTEAR/ Rus

Where:

ES is the external assets, Rus is the US sedimentation rate ( assumed to be a representative international market involvement rate ) and INTEAR shows the reported involvement net incomes.

Therefore, capital flight harmonizing to this method is measured as:

KFr = TKO – I”ES

Hot money method

The hot money method is besides referred as the narrow step of capital flight. Harmonizing to this method, capital flight represents the short term motion of capital of the non bank populace sector plus the mistakes and skip from the BOP ( Cuddington 1986 cited Makochekanwa 2007 ) . One unfavorable judgment about this method found in the literature is that the hot money method focuses merely on the short term escapes of capital. Thus, capital flight is frequently underestimated. It is calculated as:

KFr = SKO + EO

Where:

SKO is short term capital escape of the private sector and EO is the mistakes and skip.

Trade Misinvoicing Method

Capital can travel from one state to another illicitly through trade. This can be calculated by taking informations from both the importation and exporting state. Therefore, capital flight arises when there are export underinvoicing and import overinvoicing ( Claessens and Naude 1993, p.8 ) . This can be illustrated as follows:

Export underinvoicing = ( Mw/CIFFOB ) -Xc

Import overinvoicing = ( Mc/CIFFOB ) – Xw

Where, Mw: World ‘s import from that state

Ninety: State ‘s export to the universe

Megahertzs: State ‘s import from the universe

Xw: World ‘s export to that state

It is of import to observe that the import reported by the state and the import as reported by the universe should be on a comparable footing. So, they need to be adjusted by a state specific CIF/FOB ratio. A positive mark indicates capital flight while a negative mark shows capital influx. The net consequence of misinvoicing is the capital flight.

Asset method

The stock of assets which are held in foreign Bankss by nonresident is referred to as capital flight by some writers. This is the alleged plus method ( Hermes and Lensink 1992 cited Hermes et Al 2002 ) . However, given that there be several signifiers in which assets can be held, this method measures merely portion of the capital escapes ( Hermes et al 2002 ) . Therefore, this method is excessively restricted in mensurating capital flight.

It can be seen from the above that there are different methods to gauge capital flight. Different writers have in fact tried to mensurate capital flight by adding new variables to the equation and compare the new consequence obtained to the old one.

2.2.3 Determinants of capital flight

Normally, persons are regarded in most instances as being risk-averse, that is, they prefer a certain investing income. They try to avoid hazards and losingss every bit far as possible by diversifying their wealth in order to maximise their plus returns. Therefore, there is a direct relationship between the behaviour of a risk-averse person and capital flight. It can be found that determination on whether to travel or keep capital abroad is based on the sum of wealth, the comparative hazard and uncertainness and the comparative rates and returns of plus ( Hermes et al 2002 ) .

Capital flight is generated by either economic factors or non economic factors. Economic factors for case consist of exchange rate, rising prices, foreign adoption, financial shortage, and capital escapes whereas non-economic factors can be corruptness and political instability. These factors are discussed below: –

Economic Growth

An index of the macroeconomic environment which determines capital flight is the growing rate of the economic system. Economic growing normally triggers investing in the local economic system. Therefore, low economic growing or recession may bespeak low return on domestic assets and hence encourage capital to flux out of the place state.

Exchange Rate

It is frequently found that one of the determiners of capital flight is exchange rate overestimate. An overvalued exchanged rate agencies that economic agents would foretell depreciation in the close hereafter. Incipient depreciation would do foreign goods to look more expensive than domestic one. Therefore, in order to avoid future losingss, occupants will choose to keep their assets abroad which generate capital flight ( Ajayi 1995, p.16 ) .

Inflation

High degree of rising prices can besides trip capital escapes. First, high rising prices implies that the value of domestic assets will be eroded which provide inducement for occupants to keep their assets abroad. Second, high rising prices is closely attached to interchange rate such that it increases the outlook of future depreciation ( Hermes et al 2002 ) .

External debt

Several surveies have shown that there is a positive relationship between external debt and capital flight. External adoption normally reflects that an economic system is non making good or the investing clime of the state is non favourable which explain capital escapes. It is shown by Beja ( 2006, p.10 ) that there is a direct linkage between external debt and capital flight. External adoptions are frequently used to finance capital escapes. In some instances, the minutess are merely made through the fiscal establishments and may non even enter the place state. However, it can besides be that these capital flights stimulate more external adoptions.

More frequently than non, authorities passes the load of the external debt on the populace through the infliction of high revenue enhancement. In bend, the domestic occupants try to avoid such revenue enhancements by puting their capital outside the state which leads to capital flight ( Gulati 1988 ) . Furthermore, it is observed by Eaton ( 1987, p.4 ) that authorities based-guaranteed debt stimulate farther capital flight. Assuming that foreign adoptions are used to finance capital escape, nationalisation of private debt implies that if one borrower fails to refund its debt, authorities will raise the revenue enhancement load on other borrowers. Consequently, other borrowers excessively will be motivated to fly the revenue enhancement duty by puting abroad.

Fiscal shortage

It can be found that in period of financial crisis, authorities normally seeks the aid of foreign states through foreign adoption. Likewise, in this state of affairs insolvency and default hazard are likely to increase which bring on capital flight ( Ize and Ortiz 1987, p.312 ) . Furthermore, if financial shortage is financed through the injection of more money in the economic system, this can bring forth inflationary force per unit area which in bend erodes the pecuniary balances. As a effect, occupants will switch from domestic to foreign assets in order to avoid the inflationary revenue enhancement. On the other manus, if financial shortage is financed through bonds gross revenues, the consequence will be the same as publishing money. However, it will be in the signifier of higher revenue enhancement liabilities ( Ajayi 1995 ) .

Political instability

The influence of weak political organic structures on economic establishments can do deformations and instabilities. This can be a ground for capital flight. The high sensed hazards and uncertainness in the populace sector causes occupants to lose assurance in domestic economic system as they may anticipate an eroding of their future assets. As a consequence, domestic occupants may take to keep their wealth outside the state ( Hermes et al 2002, p.9 ) . Some of the factors which can take to instability are fiscal repression ( unnaturally low involvement rate ) , menace of expropriation, sensed policy reversal and default of authorities duty.

It is shown by Ndikumana and Boyce ( 2008 ) that high degree of corruptness reflecting a ‘sick ‘ economic system can promote capital flight. As stated earlier in this paper, one of the definitions of capital flight includes the position that it is an illegal dealing. Therefore, corruptness facilitates the acquisition of those illegal assets. By and large, representatives of the authorities are implicated in such minutess thereby bring oning private agents to make so.

Capital escape

Capital flight can by itself be a determiner of farther capital flight as pointed out in the literature. Harmonizing to Ndikumana and Boyce ( 2002 p. 6 ) , states with high capital escape are expected to hold a high degree of capital flight in the hereafter. In most instances, capital flight is associated with a declining macroeconomic environment where investing is non favourable which in bend leads to farther capital escapes. In add-on, the presence of capital flight forces authorities to increase the revenue enhancement liabilities on domestic occupants. As a consequence, the low returns derived after the revenue enhancement accommodation discourages private agents to put and actuate them to look for higher return abroad ( Collier at Al 2001, p.63 ) .

2.3 Empirical Aspect

Over the old ages, there have been extended researches which have tried to cast visible radiation on factors impacting capital flight. This subdivision hence points out the empirical consequences of some surveies carried out on the determiners of capital flight in different states.

2.3.1 Determinants of capital flight

Although there had been monolithic determiners of capital flight, chiefly because of differences in its measuring and differences in econometric techniques and specifications, some factors have become more obvious as its determiners. The cardinal consequences from a choice of 17 surveies on developing states have been reviewed as shown in Table-A1.Further empirical groundss on the most common determiners of capital flight, as per the tabular array, are highlighted.

Macroeconomic Stability

In 1991, Mikkelsen carried out a survey on 22 developing states during 1978-85. Using pooled informations, he concluded that growing rate is one of the grounds why capital flows out of a state. Changes in the GDP growing rates brought approximately 4 to 5 % autumn in that capital outflow-GNP ratio under the FE ( Fixed Effect ) appraisal under the different methods that was adopted.

However, it was found in an another survey of Henry ( 1996 ) reverse to what was expected that recession in Jamaica for the period 1971-1987 demoralized capital flight. It can be concluded from the coefficient that for every one point autumn in the recession, overaˆ¦ . ( jankee )

Exchange Rate

The grade of overestimate of the Latin America currency was positively related to capital flight. Taking the instance of Mexico, Pastor ( 1989 ) found that by diminishing the existent exchange rate index by 1 % capital flight fell by $ 68 1000000s in 1985. One ground why capital flee Mexico is because the Mexican fright that their assets would be eroded in the hereafter due to devaluation of their currency. In the same position, in another survey, utilizing the ordinary least squared ( OLS ) technique, Ayadi ( 2008 ) examined the determiners of capital flight in Nigeria. The consequence suggests that exchange rate devaluation significantly explains capital flight in the short tally every bit good as in the long tally.

Inflation

An probe was carried out by Victor ( 2007 ) on a panel information of 77 states from 1971 to 2000 in order to prove whether post-war rising prices additions one-year capital flight. Using different methods of mensurating capital flight and many econometric appraisal techniques, grounds suggest that 1 % addition in rising prices is accompanied by 0.005 % to 0.01 % of GDP addition in capital flight.

In order to analyze the impact of rising prices on capital flight, Dooley ( 1988 ) used a pooled arrested development on five Latin American states and Philippines for the period 1976-83. And the consequence is consistent with theoretical outlooks, that is, a high rising prices rate generates capital flight. It was found that a 1 % addition in rising prices leads to 23.10 % addition in capital escape. It is deserving indicating out here that rising prices is referred to as ‘inflationary revenue enhancement ‘ as the governments has resorted in the creative activity of money.

External Debt

A survey by Ndikumana and Boyce ( 2008 ) shows that external debts encourage capital flight. First, OLS appraisal was used followed by adding state specific effects and in conclusion by taking into history alteration in debt as endogenous. The consequences show a statistically and economically positive relationship between external adoption and capital flight. It was found that between 1970 and 2004, 62 cents out of each dollar borrowed abroad has left sub-Saharan Africa in the signifier of capital flight.

Earlier empirical grounds by Ndikumana and Boyce ( 2003 ) approved the above statement. An econometric analysis was carried from 30 sub-Saharan Africa states for the period 1970 to 1996. The consequence showed that 80 cents out of each dollar of external adoption flight the states in footings of capital escape in the same twelvemonth.

The relationship between capital flight and external debt can be farther supported by Henry ( 1996 ) , who sought to happen the causes of Jamaican capital flight. Harmonizing to the consequence, Jamaican capital escape was generated both by external debt and the economic fortunes due to these external debts. Evidences besides showed that for every one dollar of external adoption, 66 cents escape the state in term of capital flight in the same twelvemonth and a farther 33 cents flux out after two old ages.

Political instability

A research was done by Hermes et Al ( 2000 ) where they made usage of silent person variables to measure jobs attached to political instability such as the figure of blackwash and revolutions per twelvemonth and indexes of political rights and civil autonomies. It can be concluded from the empirical analysis- utilizing the robustness trial put frontward by Sala-i-Martin ( 1997 cited in Hermes e Al ) – that political instability or hazard do engender capital flight.

In South Korea during the mid 1980s and early 1990s, the state had undergone political convulsion and during that period capital fled the state well. From 1976 to 1991, the mean capital flight was about 1.92 % of GDP annually. However, in 1987 when political agitation was at its extremum, it was noticed that capital flight reached 6.6 % of GDP ( Le and Zak 2001 ) .

Similarly to South Korea, factors impacting Argentina ‘s capital escape was associated to political instability. During these yearss no peculiar attending was given to the economic state of affairs of the state and the latter exacerbate such that there was monolithic capital escape. Result suggest that between 1976 and 1991, Argentina ‘s capital flight averaged 3.4 % of GDP annually but top outing at 10 % of GDP in 1989 when badness plan was put in topographic point which caused political instability ( Le and Zak 2001 ) .

Capital escape

Rate of Return Derived functions

2.2.4 Link between capital flight and growing

The negative impact of capital flight on growing has been established by much research. Theoretically, capital flight implies a decrease in the degree of domestic investing which reduces the capital labour ratio. Consequently, labour productiveness falls and this in bend reduces the degree of end product produced. This position is supported by Pastor ( 1989, p.11 ) , who states that capital escape reduces the required domestic investing and as a consequence prevents farther economic development.

Capital flight may besides impact growing through assorted channels. Some are given below:

If capital flight is financed by a state ‘s scarce foreign exchange, it is obvious that there will non be plenty available to finance import. Furthermore, import may be important for economic growing ( Lessard and Williamson 1987 cited Pastor 1989 ) . On the other manus, capital flight can be invested in the production of exported goods which would bring forth foreign exchange to finance import.

As explained above, the positive relationship between external debt and capital flight does non lend to a state ‘s growing. In most instances, addition in external debt does non heighten the economic status of a state ; alternatively it exacerbates the state of affairs.

Erosion of the domestic revenue enhancement base holds back growing in an economic system. Normally, capital flight takes off both the incomes and stock of wealth from an economic system. Therefore, the authorities has less gross through revenue enhancement because of the decrease in nonexempt assets and income. This implies that the domestic governments have less capital to shoot in the economic system therefore detaining growing.

Capital flight has a negative impact on the economic system particularly during periods of crisis and uncertainness. It is found that, lifting capital flight hinder the economic growing. This induces farther capital escapes. As a consequence, the domestic state can non merely be deprived of foreign adoptions but besides from economic growing ( Beja 2006, p.2 ) .

2.2.5 Growth theories

One of the cardinal inquiries in economic science is what causes growing. To turn to this inquiry, many growing theories have been developed over the old ages. However, non all the theories attribute growing to the same factors.

In the late fiftiess and early 1960s, growing theory was dominated by the Neo-classical theoretical account. The Neoclassic growing theoretical account, besides known as the exogenic growing theoretical account and Solow growing theoretical account was developed by R. Solow and T. Swan ( 1956 ) . Harmonizing to this theoretical account, an economic system grows overtime due to investing which adds to capital stock, population growing, technological advancement and progresss in productiveness.

The Cobb-Douglas production map is used to exemplify the workings of the Solow-Swan growing theoretical account as shown:

Y = AKI±L1-I± ( 1 )

Where:

Yttrium: End product

A: Degree of engineering

Kelvin: Capital

Liter: Labor

I± : Production snap

The chief premises underlying this theoretical account are changeless return to scale, decreasing fringy returns to each input, exogenic production engineering and the replaceability of labor and capital.

Re-writing equation ( 1 ) in intensive signifier ( spliting by AL ) :

= Y =f

Where:

Y: output-effective labors ratio

K: capital-effective labors ratio

In the neoclassical theoretical account, salvaging which determines the degree of investing influences the capital stock in the economic system. Therefore, any escapes of capital from the economic system will impact nest eggs and hence investing in the domestic economic system. It is besides of import to take into history the degree of investing required. Consequently, the net alteration in capital per capita, is the extra nest eggs ( ) over required investing ( K ) as shown below:

K

The steady province equilibrium for the economic system is the combination of per capita GDP and per capita capital where the economic system will stay at remainder, that is, where per capita economic variables are no longer altering, Therefore, the steady province is defined by =0 and occurs at the values of y* and k*satisfying:

= s= k*

The steady province can be derived as shown below given the production map, the salvaging map and the capital broadening line.

Output-effective labors ratio

Capital-effective labors ratio

fdfsdsdsdfdsdratioratio

From the diagram, the initial steady province is reached at k* , where salvaging and capital broadening lines intersect each other. At this point, the output-effective labor ratio and the capital effectual labor ratio are changeless. To the left of k* , the capital stock is lifting ( and on the right manus side of k* , the capital stock is falling ( . An addition in salvaging rate causes an upward displacement of the salvaging agenda to the dotted agenda, .

Initially, the steady province equilibrium is at point C. Assume, salvaging has risen comparative to the investing required ; as a effect more is saved that is required to keep capital per caput invariable. Therefore, the capital stock per caput will maintain lifting until it reaches point C ‘ . At such a point both capital and end product per caput have risen. However, at point C ‘ the economic system has returned to its steady province growing rate.

Under the neoclassical theoretical account, the major factors that contribute to growing are proficient advancement, population growing and capital accretion. However, a big part growing is left unexplained and is represented in the residuary – the ‘Solow Residual ‘ . In fact, the neoclassical theoretical account has been widely criticized on the evidences that it leaves the chief factors that affect growing unexplained. It is deserving indicating out that an addition in salvaging rate will in the long tally rise merely the degree of end product and capital per caput and non the growing rate of end product per caput. Besides, the premise of perfect competition does non keep in the existent universe. Hence, the endogenous growing theoretical account attempts to rectify the state of affairs.

In the mid 1980s, the Endogenous, besides known as the New Growth Theory was developed. Research workers such as Romer ( 1986 ) , Lucas ( 1988 ) , and Rebelo ( 1991 ) pioneered this theory. The endogenous theory seeks to supply the missing account of the long tally growing in the neoclassical theory by supplying a theory of proficient advancement. The production map below is used:

Y= AK

Where:

Yttrium is end product, A represents the factors impacting proficient advancement and K includes both human and physical capital.

The chief premises underlying this production map are increasing returns to scale and changeless returns to capital. The endogenous theory besides holds that policy steps can hold an impact on the long tally growing rate of an economic system. The long term growing rate relies on governmental actions, such as revenue enhancement, substructure services and fiscal markets ( Barro 1996, p.8 ) . Therefore, capital flight which occurs through these steps as discussed above, will impact the long tally growing of the economic system.

Therefore, Endogenous growing theoreticians believe that capital flight is a important determiner of growing.

2.3 Empirical facet

Several writers have tried to cast visible radiation on factors impacting capital flight and its impact on economic growing. This subdivision hence points out the empirical consequences of some surveies on capital flight.

Although there had been monolithic determiners of capital flight, chiefly because of differences in its measuring and differences in econometric techniques and specifications, some factors have become more obvious as its determiners. The cardinal consequences from a choice of 17 surveies on developing states have been reviewed as shown in Table 1. ( Kindly refer to Appendix I ) .

Further empirical groundss on the most common determiners of capital flight, as per the tabular array, are set out below: –

A survey by Ndikumana and Boyce ( 2008 ) shows that external debts encourage capital flight. First, OLS appraisal was used followed by adding state specific effects and in conclusion by taking into history alteration in debt as endogenous. The consequences show a statistically and economically positive relationship between external adoption and capital flight. It was found that between 1970 and 2004, 62 cents out of each dollar borrowed abroad has left sub-Saharan Africa in the signifier of capital flight. Earlier empirical grounds by Ndikumana and Boyce ( 2003 ) approved the above statement. An econometric analysis was carried from 30 sub-Saharan Africa states for the period 1970 to 1996. The consequence showed that 80 cents out of each dollar of external adoption flight the states in footings of capital escape in the same twelvemonth.

An probe was carried out by Victor ( 2007 ) on a panel information of 77 states from 1971 to 2000 in order to prove whether rising prices additions one-year post-war capital flight. Using different methods of mensurating capital flight and many econometric appraisal techniques, grounds suggest that 1 % addition in rising prices is accompanied by 0.005 % to 0.01 % of GDP addition in capital flight. In another survey, Ayadi ( 2008 ) used the ordinary least squared ( OLS ) and the mistake rectification method ( ECM ) to analyze the determiners of capital flight in Nigeria. It was found that exchange rate significantly explains capital flight in the long tally.

On the other manus, a pooled cross-section analysis based on the fixed effects theoretical account was used by A?ervena ( 2006 ) to look at the impact of capital flight on economic growing for the period 1994 to 2003. Consequences from grouping all states ( Asia, Latin America, Africa and Europe and Central Asia ) indicate that a 1 % rise in capital flight reduces the growing of GDP per capita by around 3 % . Furthermore, it was found that Asiatic states were the most affected with a autumn in their growing rate by 9 % due to a 1 % addition in capital flight. In the same watercourse, it was argued by Gusarova ( 2009 ) that a 1 % addition in capital flight caused a autumn in the economic growing by 0.14 % . The difference in the consequence of A?ervena & A ; Gusarova can be attributed to the fact that the states considered were non the same and the period considered besides had a broad spread ( twelvemonth 1994 to 2003 for A?ervena and twelvemonth 2002 to 2006 for Gusarova ) .

On the other manus, Saheed and Ayodeji ( 2012 ) pointed out that capital flight has a positive, though weak, relationship with economic growing in Nigeria. The OLS ( Ordinary Least Square ) appraisal technique was used for the period 1981 to 2007 and it can be concluded that a 1 % alteration in capital flight additions economic growing by 0.094 % . This positive consequence is likely due to the fact that capital flight in Nigeria returns back in the signifier of industrial or capital goods used in the domestic production.

Hence, assorted surveies have examined the impact of several factors on capital flight and in bend, the consequence of capital flight on economic growing. It can be seen from the above that there is an equivocal relationship between capital flight and economic growing. Therefore, this survey will cast some more light on this relationship.