The Impact of Capital Flight on Economic Growth in Bangladesh

Abstract

Objective: The primary aim of this research is to dissect the influence of capital flight on Bangladesh's economic advancement, with a focus on detecting the interconnected roles of determinants driving capital outflows. Methodology: The study used the residual method to estimate capital flight in Bangladesh as an empirical approach. The Linear regression model has been used to estimate the effect of capital flight on the GDP growth rate, which is the proxy of economic growth. The causality test between capital flight and GDP growth is conducted using the Granger Causality test. Findings: The empirically-driven findings reveal a surprising positive correlation between capital dispersal and Bangladesh's economic development, contradicting the initial hypothesis of a negative association. However, the causality test shows that GDP growth does not have any impact on capital flight in Bangladesh. Practical Implications: This inquiry imparts significant perspectives about the repercussions of capital dispersion on the economic evolution of Bangladesh. Despite the unexpected positive association, it's crucial for Bangladesh to remain vigilant about potential risks correlated with capital flight. Consequently, this research proposes guidelines for regulatory bodies to restrain the consistent rise in capital outflows. Originality/Value: This research stands out as it fills the intellectual gap overlooked by previous studies, which neglected to examine this aspect in the context of Bangladesh. Given Bangladesh's recent economic strides, understanding the impact of capital flight on its GDP growth is crucial. Limitations: This study's scope is confined to the usage of the residual technique to approximate capital dispersal. A more robust research framework might offer a wider spectrum of results and a more profound comprehension.