Foreign Debt Dynamics and Economic Growth: Evidence from Pakistan

Abstract

Background: Foreign debt plays an important role in the economic development of a country like Pakistan.

Objectives: The paper has explored the relationship between exports, public debts, external debts, and the economic growth of Pakistan.

Methods: This study has adopted a time series methodology for the data analysis. Data range from 1985 to 2017. Thirty-two observations were used for each variable. The required data for the time series vectors have been collected from official websites of State Bank of Pakistan (SBP), International Monetary Fund (IMF), and World Bank Indicators (WBI). Augmented Dicky Fuller (ADF) test for stationarity of the data and co-integration model has been used for the relationship among the variables.

Results: The findings of the ADF test argued that the series has unit root at a level while they are having stationary nature at first difference. The finding of the co-integration model shows that exports, public debts, and external debts are having a long-run relationship with GDP/economic growth.

Conclusion: The study recommends that the policymakers should try to stabilize the current so that they might get the source for the price stability. The government should support the local producers so that they can compete in the market and provide low prices products to the consumers.