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Debt and Economic Growth of Pakistan; Role of Uncertain Economic and Political Conditions

Author

Listed:
  • Muhammad Jalib Sikandar

    (PhD Candidate, Department of Economics, Islamia College, Peshawar)

  • Fazale Wahid

    (Assistant Professor, Department of Economics, Islamia College, Peshawar.)

Abstract

This study is an attempt to investigate the role of political instability and economic uncertainty on debt and economic growth for the data span of 1975 to 2016 in Pakistan. We extract economic uncertainty by using Generalized Autoregressive Conditionally Heteroskedastic (GARCH) model. We explore the relationship between debt and economic growth simultaneously with Generalized Method of Moments (GMM) approach. The deep-rooted relation of political and economic uncertainty with debt and growth recommends immediate fiscal and public policy adjustments to minimize the harms of higher debt-GDP ratio and slow economic growth. This study results in the changing fiscal behavior with political shifts and confirms “the positive theory of debt†, by Alesinaand Tabellini (1989 and 1990), recommending stable political environment with consistent economic policies for Pakistan.

Suggested Citation

  • Muhammad Jalib Sikandar & Fazale Wahid, 2019. "Debt and Economic Growth of Pakistan; Role of Uncertain Economic and Political Conditions," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 11(2), pages 83-106, June.
    • Handle: RePEc:bec:imsber:v:11:y:2019:i:2:p:83-106
    DOI: dx.doi.org/10.22547/BER/11.2.5
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    More about this item

    Keywords

    Debt; Growth; Political Instability; Economic Uncertainty; Pakistan;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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