Effect of Capital Flight on Foreign Direct Investment: Evidence from Multinational Corporations in Developing African Countries

  • Joseph, Fineboy Ikechi Clifford University, Owerrinta, Abia State, Nigeria.
  • Omodero, Cordelia Onyinyechi Clifford University, Owerrinta, Abia State, Nigeria. http://orcid.org/0000-0002-8758-9756
  • J. U. Ihendinihu Michael Okpara University of Agriculture, Umudike, Abia State, Nigeria.

Abstract

This study investigates the effect of capital flight on foreign direct investment in developing nations of Africa. Secondary data employed for this study are obtained for Nigeria, Gabon, Botswana, Cameroon and South Africa from 2005-2014. The study adopts ordinary least square regression analysis to test the hypothesis of the study. The result from the regression analysis shows that capital flight has significant impact on foreign direct investment which represents t-statistic of 2.531 with F- statistic = 21.70; R2 = 0.837, and R-2 = 0.701 with the p-value 0.016 < 0.05%. It very well may be concluded from the outcome acquired that the consistent parameter over the long haul is certain. This infers if all the informative factors are held steady, outside direct speculation (FDI) will expand subsequently realizing expanded business age, increment Gross Domestic Product (GDP) of these countries, decline financing costs, sway decidedly on trade rates just as assistance in country working in less created countries. This study concluded that capital flight has a significant impact on foreign direct investment in developing nations of Africa. It therefore, recommends that foreign investors and MNCs should be meant to stop illicit outflows via capital flight through more stringent international tax laws aimed at entrenching transparency on how MNCs file in their tax returns.

Keywords: Illicit financial flows, Multinational firms, Tax evasion, Tax avoidance.

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