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2020•Lund University Publications Student Papers (Lund University)Requires access

Public Debt and Economic Growth: An Empirical Evidence from Pakistan

Muhammad Zohaib

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Abstract

This paper examines the relationship between public debt and economic growth of Pakistan. For this purpose, the study employs annual time series data of Pakistan from 1976 to 2018. Auto Regressive Distributed Lag (ARDL) approach is utilized to investigate the short as well as long run relationships between the variables. Results of the Error Correction Model (ECM) confirm that external debt, debt servicing and inflation is negatively related with economic growth whereas domestic debt, investment and openness depicts a positive relationship with economic growth both in long and the short run. It is recommended that external debt should be discouraged, and government should emphasize on financing through the domestic debt sources.

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What this paper is about

This paper examines the relationship between public debt and economic growth of Pakistan. For this purpose, the study employs annual time series data of Pakistan from 1976 to 2018. Auto Regressive Distributed Lag (ARDL) approach is utilized to investigate the short as well as long run relationships between the variables. Results of the Error Correction Model (ECM) confirm that external debt, debt servicing and inflation is negatively related with economic growth whereas domestic debt, investment and openness depicts a positive relationship with economic growth both in long and the short run. It is recommended that external debt should be discouraged, and government should emphasize on financing through the domestic debt sources.

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Available abstract

This paper examines the relationship between public debt and economic growth of Pakistan. For this purpose, the study employs annual time series data of Pakistan from 1976 to 2018. Auto Regressive Distributed Lag (ARDL) approach is utilized to investigate the short as well as long run relationships between the variables. Results of the Error Correction Model (ECM) confirm that external debt, debt servicing and inflation is negatively related with economic growth whereas domestic debt, investment and openness depicts a positive relationship with economic growth both in long and the short run. It is recommended that external debt should be discouraged, and government should emphasize on financing through the domestic debt sources.

Key concepts: Debt, Distributed lag, Economics, Debt-to-GDP ratio, External debt, Openness to experience, Internal debt, Inflation (cosmology)

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