Assessing the Efficiency of the Public Expenditure Route in Transmitting Foreign Aid to Capital Flight in Nigeria

Abstract

The study assessed the transmission efficiency of foreign aid to capital flight through the public expenditure route in Nigeria. Adopting ex-post facto design, the study used data collected from secondary sources from 1986 to 2023. Descriptive statistics were used to describe the statistical properties of the data set, followed by testing for the stationarity properties of the time series data used. The Structural Vector Autoregressive (SVAR) model was used to account for the transmission efficiency of the model. Findings of the study revealed that foreign aid efficiently responds to capital flight through the public expenditure route in Nigeria, which implies that
public expenditure is an efficient route for the transmission of foreign aid to capital flight in Nigeria. The study therefore recommended that foreign aid should be encouraged as a model for the promotion of public expenditures in Nigeria. However, funds meant for capital expenditure should be transparently allocated and the handlers be subjected to integrity test to ensure that public expenditure is insulated from capital flight. Also, the Federal ministry of finance, Ministry of Economic planning and the Central Bank of Nigeria should discount the causal effect of foreign aid on capital flight.