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External Debt Accumulation and Its Impact on Economic Growth in Pakistan

Author

Listed:
  • Rifaqat Ali

    (Education Department, Punjab)

  • Usman Mustafa

    (Department of Business Studies, Pakistan Institute of Development Economics, Islamabad)

Abstract

This study analysed the long run and short run impact of external debt on economic growth in Pakistan for the period 1970-2010 using annual data, collected from different sources. This study used the extended production function that measured Gross National Product (GNP) as a function of annual education expenditure (Proxy of human capital), capital, labour force and external debt as a percentage of GDP. Long run estimation employed a cointegration analysis while short run analysis relied on Error Correction Method (ECM).The estimated results indicated the external debt exerts significant negative impact on economic growth, this confirmed the existences of debt overhang in Pakistan in both long and short run. Labour force affect GNP negatively in long run and short run as well, but in short run impact is insignificant. However, human capital and capital contribute positively and significantly to GNP in long run and short run as well, yet the positive impact of capital exceed the impact human capital in long run and vice versa in short run. The coefficient of Error Correction Term (ECT) suggested that any deviation from the long term inequality is corrected by 33 percent over the each year. Significant ECT is further proof of the existence of stable long run relationship.

Suggested Citation

  • Rifaqat Ali & Usman Mustafa, 2012. "External Debt Accumulation and Its Impact on Economic Growth in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 79-96.
    • Handle: RePEc:pid:journl:v:51:y:2012:i:4:p:79-96
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    File URL: http://www.pide.org.pk/pdf/PDR/2012/Volume4/79-96.pdf
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    Citations

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    Cited by:

    1. Rabia Zafar & Muhammad Maleeq-Ul-Islam Zafar, 2022. "Impact of External Debt on Economic Growth Rate: An Empirical Evidence from Pakistan," Technium Social Sciences Journal, Technium Science, vol. 27(1), pages 445-451, January.
    2. Sonia Afrin Ale & Md Shafiqul Islam & Hazera-Tun Nessa, 2023. "Does External Debt Affect Economic Growth: Evidence from South Asian Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 13(1), pages 83-88, January.
    3. Minhaj ud-Din & Muhammad Azam Khan & Muhammad Tariq, 2020. "External Debt - Blessing or Curse: Empirical Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 235-246.
    4. Ilham Syah Azikin & Dian Anggriani Utina & Bahtiar Maddatuang & Nurfaisah Baharuddin & Abdul Rahim Ridzuan & Nur Hayati Abd Rahman, 2024. "How do Environmental Quality and Technology Affect Public Debt in Indonesia? A Time Series Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 14(1), pages 441-446, January.
    5. Kashif Munir & Nisma Riffat Mehmood, 2018. "Exploring the Channels and Impact of Debt on Economic Growth," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 19(2), pages 171-191, September.
    6. Saida Daly & Nihel Benali & Manal Yagoub, 2022. "Financing Sustainable Development, Which Factors Can Interfere?: Empirical Evidence from Developing Countries," Sustainability, MDPI, vol. 14(15), pages 1-22, August.
    7. Abdul Rahman & Muhammad Arshad Khan & Lanouar Charfeddine, 2020. "Does Financial Sector Promote Economic Growth in Pakistan? Empirical Evidences From Markov Switching Model," SAGE Open, , vol. 10(4), pages 21582440209, October.
    8. Madiha Bashir & Attiya Yasmin Javid, 2014. "Financial Flows, External Capital Structure, Institutions and Economic Growth in Asian Developing Economies," PIDE-Working Papers 2014:108, Pakistan Institute of Development Economics.
    9. Muhammad Asif Shamim & Syed Tehseen Jawaid & Madiha Kamal, 2017. "External Debt And Export Performance In Pakistan: An Empirical Investigation," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 13(2), pages 13-13.
    10. Wanniarachchi, Sasindu Lakruwan, 2020. "The Nexus among External Debt and Economic Growth: Evidence from South Asia," OSF Preprints ghfdb, Center for Open Science.
    11. Adewale Hassan & Daniel Meyer, 2021. "Exploring the Channels of Transmission between External Debt and Economic Growth: Evidence from Sub-Saharan African Countries," Economies, MDPI, vol. 9(2), pages 1-16, April.
    12. Riffat, Nisma & Munir, Kashif, 2015. "Exploring the Channels and Impact of Debt on Economic Growth in South Asia," MPRA Paper 66830, University Library of Munich, Germany.
    13. Muhammad Asif Shamim & Syed Tehseen Jawaid & Madiha Kamal, 2017. "External Debt And Export Performance In Pakistan: An Empirical Investigation," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 13(2), pages 22-35.
    14. Michael Mbate, 2013. "Domestic Debt, Private Sector Credit and Economic Growth in Sub-Saharan Africa," African Development Review, African Development Bank, vol. 25(4), pages 434-446.

    More about this item

    Keywords

    External Debt; Economic Growth; Gross National Product (GNP); Cointegration;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

    Statistics

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