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External public debt and economic growth: empirical evidence from Bangladesh, 1974 to 2010

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  • Shah, Md. Mahmud Hasan
  • Pervin, Shahida

Abstract

This research paper investigates the relevance of the dependence of Bangladesh economy on external public debt. Using some econometric tools, the study is conducted to find out the effect of external public debt on economic growth from the perspective of Bangladesh economy for the period 1974 - 2010. The study will probe debt overhang and crowding out effect of external public debt to represent the effect. To specify the debt overhang and crowding out effect of external public debt, the debt burden has been segmented into two part; external debt stock and external debt service. Long run significant negative effect of external public debt service and positive effect of external public debt stock on GDP growth have been found from this investigation. In short run, only external debt service has negative effect but the debt stock does not have any significant effect. Thus the investigation did not find any evidence of debt overhang provided that there is no significant adverse effect of debt stock on GDP growth. But crowding out effect was originated from the fact that there is evidence of adverse effect of debt service payment on economic growth for the period. As more debt stock means more service payment, the study shows a dichotomy in obtained results. So the reconciliation of debt should be prudent to optimize the growth of Bangladesh. Short run disequilibrium in the path of long run is corrected at a good speed.

Suggested Citation

  • Shah, Md. Mahmud Hasan & Pervin, Shahida, 2012. "External public debt and economic growth: empirical evidence from Bangladesh, 1974 to 2010," MPRA Paper 55407, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:55407
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    References listed on IDEAS

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    1. Toan Quoc Nguyen & Mr. Benedict J. Clements & Ms. Rina Bhattacharya, 2003. "External Debt, Public Investment, and Growth in Low-Income Countries," IMF Working Papers 2003/249, International Monetary Fund.
    2. Ramesh Chandra Paudel & Nelson Perera, 2009. "Foreign Debt, Trade Openness, Labor Force and Economic Growth: Evidence from Sri Lanka," The IUP Journal of Applied Economics, IUP Publications, vol. 0(1), pages 57-64, January.
    3. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    4. Islam , Md. Ezazul & Biswas , Bishnu Pada, 2005. "Public Debt Management and Debt Sustainability in Bangladesh," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 31(1-2), pages 79-102, March-Jun.
    5. Abdur Chowdhury, 2001. "External Debt and Growth in Developing Countries: A Sensitivity and Causal Analysis," WIDER Working Paper Series DP2001-95, World Institute for Development Economic Research (UNU-WIDER).
    6. repec:aer:wpaper:90 is not listed on IDEAS
    7. Bernhard G. Gunter & A. F. M. Ataur Rahman, 2008. "Analyzing Bangladesh’s Debt Sustainability Using SimSIP Debt," Bangladesh Development Research Working Paper Series (BDRWPS) BDRWPS No. 2, Bangladesh Development Research Center (BDRC).
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. H.R.A. Chamini Thilanka & J.G. Sri Ranjith, 2018. "The Impact of Public Debt on Private Investment: Sri Lankan Experience," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 8(8), pages 1-20, August.
    2. Subrata Deb Nath & Md. Rezaul Karim & Faruk Hossain & Mohammed Main Uddin, 2023. "Impact of External Public Debt on Economic Growth: A Case Study of Bangladesh," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 14(3), pages 01-08, September.
    3. H.R.A. Chamini Thilanka & J.G. Sri Ranjith, 2018. "The Impact of Public Debt on Private Investment: Sri Lankan Experience," International Journal of Business and Social Research, LAR Center Press, vol. 8(8), pages 1-20, August.
    4. Yağmur Yavuz & Mehmetsıddık Polat, 2024. "Relationship between External Debt and Economic Growth: An Econometric Analysis of the Turkish Economy," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 11(2), pages 334-354, July.
    5. Tariq Hussain & Ahmad Raza Ul Mustafa & Makhdum M.I. & Kaleem Ullah, 2022. "Defense Expenditures, Fiscal Deficit And Debt Servicing Nexus: A Case Study Of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 74-83, June.
    6. Adeela Hussain & Muhammad Irfan Chani, 2018. "Remittances, Foreign Debt and Economic Growth: A Cross Country Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 7(2), pages 59-71, June.

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    More about this item

    Keywords

    Crowding out effect; cointegration; debt overhang; external public debt; error correction mechanism.;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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