Capital Outflows and Unemployment: A Panel Analysis of OECD Countries

Abstract

Liberalization of trade and payment regimes after the mid-1980s expedited capital outflows, especially from developing countries toward developed ones. This inevitable trend has given rise to new discussions among scholars regarding the real effect of capital movements abroad on the domestic labor market. However, the debate is ambiguous and ongoing. Thus, the main objective of this study is to determine the relationship between capital outflows and employment levels in the home country from 2006–2013 in 30 Organization for Economic Co-operation and Development (OECD) countries. We have employed dynamic panel data methods to capture the causal relationship between capital outflows and employment levels. Finally, our empirical predictions show that capital outflows lead to a reduction in employment levels in the home market, whereas a larger market size leads to an increase in the employment levels.