A Study on Public Debt and Economic Growth in Selected South Asian Countries

Abstract

Public debt is one of the core macroeconomic gages that represent the image of the country in the world. This study analyses the long run association as well as cause and effect of external debt and debt service on economic growth in South Asian countries including variables such as; interest payment, foreign direct investments, gross savings and net export to the model to prevent spuriousness of the outcomes. This research is directed by the neoclassic economic growth theory. The study uses secondary data that were collected from the World Bank (WB) and International Monetary Funds (IMF) by casing period from 1990 to 2015. The stationary of the data set has been tested by applying panel unit root tests. The long run association of the public debt and the economic growth were checked via applying Pedroni Residual Co-integration and cause and effect of the public debt on economic growth in short run check through Granger Causality test. The results show that external debt negatively impacts economic growth in countries of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka are the South Asian countries that are examined in the study. Panel data show that there is a co-integration between external debt and economic growth for South Asian countries.