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Exploring the Channels and Impact of Debt on Economic Growth in South Asia

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  • Riffat, Nisma
  • Munir, Kashif

Abstract

This study investigates the existence of non-linear relationship between debt and economic growth in South Asia and explored the channels through which debt has its nonlinear impact on the growth of economy. Panel data on four South Asian countries over the period of 1991 to 2013 utilized and fixed effect model employed for estimation. The results suggest that there is nonlinear relationship between debt and economic growth in South Asian countries and the channels through which debt transmits impact into the economy are private investment, public investment and total factor productivity. The government should stimulate the revenue generation and reduce its huge current expenditures. Reducing debt accumulation alone will not rectify the problem unless the supplementary macroeconomic policies are made sound. By removing political constraints, macroeconomic imbalances, improving governance, reducing dependency on foreign aids and eliminating structural distortions, the problem of debt can be resisted.

Suggested Citation

  • 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.
    • Handle: RePEc:pra:mprapa:66830
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    References listed on IDEAS

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    2. 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.

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    More about this item

    Keywords

    Debt; Economic Growth; Investment; Total Factor Productivity; South Asia;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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