Nexus between Debt and Economic Growth: Evidence from Pakistan

Abstract

The present study aims to analyse the link between external debt, domestic debt and economic growth for Pakistan. To serve the purpose, the study uses the data for the time period from 1987 to 2018. Various econometric techniques i.e, fully modified ordinary least squares model, dynamic ordinary least squares model have been employed to estimate the proposed model. The empirical findings suggested that there exist a negative relationship between growth and debt whether it is external or domestic. The study confirmed the existence of debt overhang effect in the economy. It is suggested that Pakistan should reduce her reliance on external and domestic debt and should concentrate over increasing their tax and non-tax revenues to finance fiscal expenditures.

External Debt and Nigeria's Economic Growth: Determinants and Implications

“…This suggests that external debt service has a detrimental effect on Egypt's resources. Rawat (2019) analysed the link between external debt, domestic debt and economic growth for Pakistan from 1987 to 2018 using fully modified ordinary least squares model. Empirical findings suggested that there exist a negative relationship between economic growth and debt whether it is external or domestic, thereby confirming the debt overhang theory…”