EVALUATING THE HETEROGENEOUS ROLE OF INSTITUTIONAL QUALITY IN MITIGATING THE ADVERSE EFFECTS OF CAPITAL FLIGHT ON NIGERIA’S ECONOMIC GROWTH: FRESH INSIGHTS FROM A QUANTILE NONLINEAR ARDL FRAMEWORK

Abstract

This study seeks to examine whether institutional quality mitigated the adverse effect of capital flight on economic growth in Nigeria between 1996 and 2022. The study utilised the novel quantile-based nonlinear autoregressive distributed lag (QNARDL) estimation procedure to estimate the size-based and sign-based heterogeneous link between the investigated series. The following outcomes were obtained: First, capital flight substantially reduces economic growth at diverse quantiles. Second, institutional quality significantly affects economic growth positively. Third, the effects of capital flight and institutional quality on growth are sign- and size-dependent, upholding their heterogeneous link. Fourth, while capital flight is detrimental to economic growth, institutional quality mitigates the devastating effect of capital flight on economic growth at diverse quantiles, both in the short run and long run. The study therefore recommends a business-friendly environment and investment- oriented policy to spur investors to massively invest in the country rather than transferring capital to other countries. Furthermore, quality institutions through good governance, political stability, a strong regulatory system, transparency, fighting corruption, and adherence to rules are required to reduce capital flight and thus enhance economic growth.