IMPACT OF CAPITAL FLIGHT ON NIGERIA DOMESTIC INVESTMENT IN A FINANCIALLY GLOBALIZED WORLD ECONOMY

ABSTRACT: This study investigates the impact of capital flight on Nigerian domestic investment within the context of a financially globalized world, employing the Autoregressive Distributed Lag (ARDL) model to explore long-run relationships. The study examines key variables, including capital flight, interest rates, exchange rates, foreign direct investment (FDI), and external debt, to assess their effects on domestic investment. The ARDL model results reveal that capital flight has a positive but statistically insignificant impact on domestic investment. Conversely, interest rates exhibit a negative relationship with domestic investment, implying that higher interest rates discourage investment activities. Exchange rates, on the other hand, have a significant positive impact, indicating that currency depreciation may boost domestic investment by improving competitiveness.Foreign direct investment shows a weak positive relationship with domestic investment but lacks statistical significance, suggesting its limited direct influence in the long run. External debt has a significant negative effect on domestic investment, signifying that high debt levels crowd out investment by diverting resources to debt servicing.The study concludes that, while capital flight does not significantly affect domestic investment, external factors such as exchange rates and external debt play critical roles in shaping investment decisions in Nigeria. The findings highlight the need for policy measures aimed at stabilizing exchange rates, managing external debt, and reducing interest rates to foster a more conducive environment for domestic investment. Furthermore, curbing capital flight through stricter regulations and improving financial sector reforms could help enhance domestic investment in a financially globalized world.

KEYWORDS: Capital Flight, Domestic Investment, Interest Rate, Exchange rate, Foreign Direct Investment, External Debt.