Impact of Illicit Financial Flow on Economic Growth and Development on the Nigerian Economy
CHAPTER ONE
Objective of the study
The objectives of the study are;
- To ascertain the impact of illicit financial flows on economic growth in Nigeria
- To ascertain the impact of illicit financial flows on per capita income in Nigeria
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
Illicit financial flows take many forms and circulate through a global maze in which ownership is obscured while profits, assets, and taxes are lost. In a groundbreaking report which uses World Bank and IMF data to estimate the quantity and patterns of illicit financial flows coming out of developing countries, the Global Financial Integrity (GFI,2010) documented Nigeria as the leading source of illicit financial outflow from sub-Sahara Africa during the years 2000 to 2009. The report showed that developing countries lost USD 903 billion in illicit outflows in 2009. While this marks a significant decrease from the USD 1.55 trillion they lost in 2008, the global financial crisis accounts for the vast majority of the decrease, rather than improved governance or economic reforms (www.gfintegrity.org). According to that report, developing countries lost between USD 723 billion and USD 844 billion per annum on average through illicit flows over the decade ending 2009. (www.controlcapital.net
Despite the onset of the global financial crisis in the same period, illicit flows increased in current dollar terms by 15.19% per annum from USD 386 billion at the start of the decade to USD 903 billion in 2009 (www.controlcapital.net).
Adjusted for inflation, illicit financial flows still grew by 10.6% making the developing world lose USD 859 billion in illicit outflows in 2010, an increase of 11% over 2009. The report also revealed that illicit financial flows have increased in every region of developing countries. The real growth of illicit flows by regions over the period of study is shown as follows: Africa 23.8 percent, the Middle East and North Africa (MENA) 26.3 percent, developing Europe 3.6 percent, Asia 7.8 percent, and Western Hemisphere 2.7 percent. The group also ranked Nigeria as the 7th among the top 10 countries with the highest measured cumulative illicit financial outflows between 2001 and 2010 with the list showing China as first with $2.74 trillion followed by Mexico with $476 billion, others are Malaysia: $285 billion, Saudi Arabia: $210 billion, Russia: $152 billion, Philippines: $138 billion, Nigeria: $129 billion, India: $123 billion, Indonesia: $109 billion, United Arab Emirates: $107 billion (www.africanoutlookonline.com).
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
The data for this study were mainly secondary and sourced from the global financial integrity website and CBN statistical bulletins. In consideration of the specified variables, they were subjected to some test to ensure that adequate allowance was made for the dynamic relationship between the variables regarding stationary and cointegration. Unit root test was carried out to test for the stationary of the time series data using the Augmented Dickey-Fuller (ADF) test. Johansen Co-integration approach was adopted to test the long run relationship between the variables.
Model 1:
GDP = f(IFF)
Thus;
GDP = β0 + β1IFF+ µ —————————————- 1
Where:
GDP= Gross Domestic Product (Economic Growth)
IFF = Illicit Financial Flows
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
Table 1: Unit Root Estimates: Augmented Dickey-Fuller (ADF)
CHAPTER FIVE
CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was on impact of illicit financial flow on economic growth and development on the Nigeria economy. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of illicit financial flow on economic growth and development on the Nigeria economy
Conclusion
The mobilization and proper utilization of domestic resources lie at the heart of the process of sustainable development and growth. Illicit financial flow undermines both. Suffice to say that this menace remains one of the major economic problems confronting Nigeria and indeed Africa as a whole as evidenced by the findings of this study. The resource drain on Nigeria and countries in the Sub-Saharan Africa over the past thirty years is almost equivalent to Africa’s current GDP. This represents a major drag on African development and dwarfs much of the effort that donor countries undertake to boost the continent’s struggling economies. This poses a threat not only to Nigeria but Africa as a whole. Based on the above empirical findings we, therefore, conclude that illicit financial flows have a significant impact on economic growth and development of Nigeria
Recommendation
- The government of Nigeria and indeed other sub-Saharan Africa must partner with governments of developed nations to monitor the movement of funds out of Nigeria into tax havens and secrecy jurisdictions and ensure that the culprits are brought to book.
- Nigeria must develop customs capacity in order to fight the massive outflows of capital through illicit practices. Adequate training and retraining must be given to meet current global practice.
- Government and regulatory bodies must ensure that banks and tax haven regularly report to the Bank of the International Settlements (BIS) detailed deposits by sector, maturity, and country of residence of deposit holders.
- The government should address the problem of shell companies by requiring that all corporations, foundations, and trusts confirm beneficial ownership information in all banking and securities accounts.
- The government must address capacity issues and fight corruption domestically within and outside tax authorities.
- Pursue automatic cross-border exchange of tax information on personal and business accounts, ideally on a multilateral basis.
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