Labor migration and its impact on Economic growth In Sri Lanka

Abstract

This study examines the multifaceted relationship between labor migration and economic growth in Sri Lanka over the period 1990–2023, a context where remittances play a critical role in sustaining the balance of payments, household incomes, and foreign reserves. Utilizing time-series data and the Autoregressive Distributed Lag (ARDL) model, the research evaluates both the short-run and long-run impacts of labor outmigration on macroeconomic performance, incorporating key variables such as remittance inflows, labor force participation, gross capital formation, and inflation in relation to GDP growth. The empirical findings reveal that remittances exert a statistically significant positive influence on long-term economic growth, underscoring their role as a vital external financial resource that supports household consumption and investment. However, excessive outmigration, particularly of skilled and semi-skilled workers, poses risks to domestic productivity and innovation potential, raising concerns about long-term growth sustainability. Inflation is found to negatively affect economic growth, while gross capital formation and labor force participation contribute positively, highlighting the importance of a balanced macroeconomic environment in leveraging the benefits of labor migration. Diagnostic and stability tests confirm the robustness of the model, ensuring the reliability of the results. Based on these insights, the study recommends a multi-pronged policy framework that promotes the productive use of remittances, strengthens reintegration mechanisms for return migrants, and ensures macroeconomic stability to mitigate the adverse impacts of excessive labor outflows. Additionally, fostering financial inclusion and institutional support for migrants can enhance the developmental impact of labor migration. This research contributes to the broader discourse on migration and development by providing empirical evidence to guide policies aimed at optimizing labor migration as a tool for sustainable and inclusive economic growth in Sri Lanka.