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Impact of External Public Debt on Economic Growth: A Case Study of Bangladesh

Author

Listed:
  • Subrata Deb Nath

    (Senior Principal Officer, Janata Bank Limited, Dhaka-1000, Bangladesh)

  • Md. Rezaul Karim

    (Assistant General Manager, Janata Bank Limited, Dhaka-1000, Bangladesh)

  • Faruk Hossain

    (Assistant General Manager, Janata Bank Limited, Dhaka-1000, Bangladesh)

  • Mohammed Main Uddin

    (Assistant General Manager, Janata Bank Limited, Dhaka-1000, Bangladesh)

Abstract

Purpose: Purpose: The association between foreign (external) public debt and the economic growth has been studied extensively, with some studies showing a positive, others a negative relationship, and still others finding no significant relationship under any economic state. We choose this research with the aim to look at how Bangladesh’s foreign state debt affects economic growth. Materials and Methods: This research uses gross domestic product growth (proxy variable of economic growth) as the response (dependent) variable and foreign direct investment (FDI) inflow, export, import, and external debt as the independent variables utilizing time series data for the years 1961–2021. This study uses secondary data sources like World Bank macrotrends data for all econometric analysis. We employ the econometric technique of Augmented Dickey Fuller and Phillips Perron unit root test to check stationary property of dependent and independent variables, autoregressive distributed lag (ARDL) bound testing approach to show the long run association, and ECM for short run association. Results: Findings of this study reveal that Foreign (external) debt adversely affect economic growth, that is, if foreign public debt is increase in 1%, it decreases economic growth by 8.81% in the short-run. Moreover, ARDL bound testing approach indicates that there is a long-term association between foreign public debt and economic growth. Long-run results also indicate if external public debt is increased in 1%, it will result in a 2.60% decline growth. Moreover, the findings of the research also demonstrate that import, export, and FDI inflow possess an insignificant impact on growth. Implication: Academicians and researchers can use the findings of this study as reference. In addition, it also helps the policymakers to manage foreign public debt, focus on debt sustainability, diversify funding sources, strengthen fiscal management, etc.

Suggested Citation

  • 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.
    • Handle: RePEc:aii:ijcmss:v:14:y:2023:i:3:p:01-08
    DOI: 10.18843/ijcms/v14i3/01
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    References listed on IDEAS

    as
    1. Abdur Rauf & Amara Akram Khan, 2017. "Impact of Foreign Debt on Economic Growth: Evidence from Pakistan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(10), pages 1005-1013, October.
    2. Md Reza Sultanuzzaman & Hongzhong Fan & Mahamud Akash & Banban Wang & Uddin Sarker Md Shakij, 2018. "The role of FDI inflows and export on economic growth in Sri Lanka: An ARDL approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1518116-151, January.
    3. Daniel Lim & Michael Groschek, 2021. "Public Debt and Economic Growth in Switzerland," Journal of Contemporary Research in Business, Economics and Finance, Learning Gate, vol. 3(2), pages 39-47.
    4. Md. Ahsan Ullah & Subrata Deb Nath & Munna Rani Biswas, 2020. "Impact of bank-specific internal factors on the profitability of state-owned commercial banks in Bangladesh," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 11(2), pages 24-32, May.
    5. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    6. Mohammad Morshedur RAHMAN & Mohammad Abul BASHAR & Suman DEY, 2012. "External Debt And Gross Domestic Product In Bangladesh: A Co-Integration Analysis," Management Research and Practice, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 4(4), pages 28-36, December.
    7. 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.
    8. Kazi Mezbah Uddin Ahamad* & Md. Mominul Islam, 2020. "The Effects of Public Debt on Economic Growth in Bangladesh: An Evidence from the ARDL Bound Testing Approach," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 6(5), pages 87-95, 05-2020.
    9. Abdur Rauf & Amara Akram Khan, 2017. "Impact of Foreign Debt on Economic Growth: Evidence from Pakistan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(10), pages 1005-1013.
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