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External debt and growth: role of stable macroeconomic policies

Author

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  • Sima Rani Dey
  • Mohammad Tareque

Abstract

Purpose - This study aims to examine the impact of external debt on economic growth in Bangladesh within a broader macroeconomic scenario. Design/methodology/approach - In the process of doing so, it assesses the empirical cointegration, long-run and short-run dynamics of the concerned variables for the period of 1980–2017 applying the autoregressive distributed lag (ARDL) bounds testing approach to cointegration. First, debt-gross domestic product linkage explores the impact of external debt impact on economic growth using a set of macro and country risk variables, and then this linkage is also analyzed along with a newly formed macroeconomic policy (MEP) variable using principal component analysis. Findings - The study results reveal the negative impact of external debt on GDP growth, but the larger positive impact of MEP index indicates that this adverse effect of debt can be mitigated or even nullified by sound MEP and appropriate human resource policy. Originality/value - The dynamic effects of different shocks (external debt and macro policy variable) on economic growth by vector autoregression impulse response function also confirm our ARDL findings.

Suggested Citation

  • Sima Rani Dey & Mohammad Tareque, 2020. "External debt and growth: role of stable macroeconomic policies," Journal of Economics, Finance and Administrative Science, Emerald Group Publishing Limited, vol. 25(50), pages 185-204, July.
    • Handle: RePEc:eme:jefasp:jefas-05-2019-0069
    DOI: 10.1108/JEFAS-05-2019-0069
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    Citations

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    Cited by:

    1. Adedokun Adebayo & Okorie Ukafor Ukafor, 2024. "Macroeconomic Instability in Nigeria; Examining the Roles of External Debts," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 11(5), pages 1098-1116, May.
    2. Nelson Derrick Nguepi & Ibrahim Ngouhouo & Irina Bilan, 2024. "Foreign or Domestic Public Debt for Cameroon’s Development? An Externality Approach," Sustainability, MDPI, vol. 16(16), pages 1-27, August.

    More about this item

    Keywords

    External debt; Economic growth; Macroeconomic policy; ARDL; C32; H63; E23; E60;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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