PUBLIC DEBT AND ECONOMIC GROWTH IN PAKISTAN: A REASSESSMENT

Khalil Jibran, Arshad Ali, Umar Hayat, Amjad Iqbal

Abstract


This study examined the effect of public debt on economic
growth for Pakistan over the period 1972 to 2012. Autoregressive
distributed lag (ARDL) bounds testing procedure was applied to
explore the long and the short run liaison between public debt and
economic growth. This study examined the effect of public debt on
both the Gross Domestic Product (GDP) and the Grass National
Product (GNP) unlike other studies, which examined only one
indicator of economic growth. Public debt includes both external
debt and domestic debt. Our findings reveal a significant negative
effect of external debt on GDP and GNP in the long run and in the
short run. Further, debt servicing is inversely influencing GDP and
GNP in the short run. However, domestic debt is found to have no
effect on economic growth. This study suggests that reliance on public
debt should be minimized as this adversely effects economic growth
in Pakistan.


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DOI: http://dx.doi.org/10.22555/pbr.v18i2.830

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