Illicit Financial Outflows and Domestic Linkage Disruption in Nigeria

Illicit financial outflows remain a major constraint on Nigeria’s development, yet much of the literature focuses on their causes and scale rather than their effects on domestic economic linkages. This paper examines illicit financial outflows through the capital flight channel, using residual-method capital flight estimates as an empirical proxy for unrecorded outward resource movements. The paper develops an Economic Linkages Framework to explain how capital flight disrupts the channels through which domestic investment generates multiplier effects, employment, fiscal capacity, supply-chain deepening, and productivity spillovers. Drawing on Hirschman’s (1958) linkage theory, Keynesian multiplier analysis, and endogenous growth theory, it introduces a nine-type typology of domestic linkages covering production, financial, fiscal, labour market, consumption, technology, trade-external, institutional, and spatial-territorial dimensions. The empirical analysis is illustrative rather than causal, given the small sample of 26 annual observations. OLS results show that unemployment is strongly and negatively associated with GDP growth (R² = 0.574), suggesting that the labour market channel is the most visible linkage pathway in the available data. The direct and squared capital flight terms are not statistically significant, so the non-linear linkage disruption hypothesis remains suggestive rather than confirmed. The paper contributes a conceptual framework for analysing illicit financial outflows as a process of domestic linkage disruption and structural fragmentation, with implications for capital retention, employment, fiscal capacity, and institutional reform in Nigeria and comparable resource-dependent economies.