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Does capital flight undermine growth: a case study of Pakistan

Malik Fahim Bashir (Department of Management Sciences, COMSATS University Islamabad-Abbottabad Campus, Abbottabad, Pakistan)
Taimur Khan (Department of Management Sciences, COMSATS University Islamabad-Abbottabad Campus, Abbottabad, Pakistan)
Yasir Bin Tariq (Department of Management Sciences, COMSATS University Islamabad-Abbottabad Campus, Abbottabad, Pakistan)
Muhammad Akram (School of Economics, International Islamic University Islamabad, Islamabad, Pakistan)

Journal of Money Laundering Control

ISSN: 1368-5201

Article publication date: 31 August 2022

Issue publication date: 28 November 2023

200

Abstract

Purpose

This study aims to estimate the magnitude of capital flight from Pakistan. Furthermore, it analyzes the impact of capital flight on the economic growth of Pakistan in the short and long run.

Design/methodology/approach

This study uses the World Bank’s residual method to estimate the magnitude of capital flight from Pakistan during 1976–2018. This study used the autoregressive distributed lag (ARDL) approach to estimate the effect of capital flight on the economic growth of Pakistan.

Findings

ARDL results revealed a negative and statistically significant relationship between different measures of capital flight and economic growth in the long run. However, this relationship is not statistically significant in the short run. After correction for external borrowing and trade misinvoicing, this study finds that the total capital flight from Pakistan during the study period amounted to US$333bn (in 2010 dollars). With accrued interest earnings, the stock of capital amounted to US$124,768bn, significantly higher than the accumulated stock of long-term debt, which amounted to US$1,231bn during the study period indicating that Pakistan faces a severe challenge of capital flight.

Originality/value

This study calculates the magnitude of capital flight from Pakistan for the first time. Furthermore, this study also calculates the magnitude of capital flight for military and democratic regimes. This study suggests many policy proposals to deal with the challenge of capital flight.

Keywords

Acknowledgements

Funding: This research received no specific grant from any funding agency in the public, commercial or not-for-profit sectors.

Citation

Bashir, M.F., Khan, T., Bin Tariq, Y. and Akram, M. (2023), "Does capital flight undermine growth: a case study of Pakistan", Journal of Money Laundering Control, Vol. 26 No. 6, pp. 1131-1149. https://doi.org/10.1108/JMLC-07-2022-0100

Publisher

:

Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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