Nigeria as a country is faced with a paradoxical situation of increasing level of foreign aid inflows and corresponding high level of capital flight. The study assessed the transmission efficiency of foreign aid and capital flight through the public expenditure route in Nigeria. The study adopted ex-post facto design using data collected from secondary sources from 1986 to 2021. Descriptive statistics were used to describe the 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. The findings of the study revealed that foreign aid efficiently responded 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 subjected to integrity test to ensure an effective strategy for the promotion of public expenditure 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 and the causality between capital flight and foreign aid in Nigeria from their estimation of economic behaviour for effective economic policy.