The Relationship between Capital Flight, Labor Migration and Economic Growth

Abstract

Capital flight and labor migration have been increasing in developing nation like Pakistan. This study is used to check the relationship between capital flight, labor migration and economic growth of Pakistan. Time series data is used from 1983-2014 for variables like unemployed labor, capital outflow, unemployment and political instability. Different techniques such as unit root test, granger causality test, ordinary least square and two stages least square are used. Granger causality test showed that capital flight and economic growth have bidirectional causality, while labor migration and economic growth showed unidirectional causality. Two stage least square showed that political instability, labor migration, capital flight and unemployment have the negative impact on the economic growth of Pakistan. Political and security situation should be improved for better economic growth.