Debt and Economic Growth of Pakistan; Role of Uncertain Economic and Political Conditions

Abstract

This study is an attempt to investigate the role of political instability and economic uncertainty on debt and economic growth for the data span of 1975 to 2016 in Pakistan. We extract economic uncertainty by using Generalized Autoregressive Conditionally Heteroskedastic (GARCH) model. We explore the relationship between debt and economic growth simultaneously with Generalized Method of Moments (GMM) approach. The deep-rooted relation of political and economic uncertainty with debt and growth recommends immediate fiscal and public policy adjustments to minimize the harms of higher debt-GDP ratio and slow economic growth. This study results in the changing fiscal behavior with political shifts and confirms "the positive theory of debt", by Tabellini (1989 and1990), recommending stable political environment with consistent economic policies for Pakistan.

Ageing Population and Economic Growth: An Empirical Investigation

“…Firstly, this method is applicable for data with large cross-sections and small period (Arellano & Bond, 1991). Secondly, there is an endogeneity problem when the growth model includes the debt variable (Kim et al, 2017;Sikandar & Wahid, 2019). The reason being is because the EDEBT and y are subject to reverse causality.…”