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Does External Debt Affect Economic Growth: Evidence from South Asian Countries

Author

Listed:
  • Sonia Afrin Ale

    (Department of Economics, Noakhali Science and Technology University, Bangladesh. Email: ale1sa@cmich.edu)

  • Md Shafiqul Islam

    (Department of Economics, Noakhali Science and Technology University, Bangladesh.)

  • Hazera-Tun Nessa

    (Department of International Business, University of Dhaka, Bangladesh.)

Abstract

Time series econometric methods are frequently used in studies examining how external debt affects economic growth. For the period of 1980-2020, this study creates a panel dataset of five South Asian nations and examines the link between external debt and economic growth. The findings of Cross-sectionally Augmented Panel Unit Root Test by Pesaran's (2007) confirms that all variables are integrated in order I (1). To understand the error correction mechanism that determines the short-run dynamic nature of external debt and economic growth, the study uses the Cross-Sectional Dependence Autoregressive Distributed Lag (CS-ARDL) technique. A significant negative association between external debt and economic growth is found to exist in South Asia both in the long run and in the short run. Since rising foreign debt is associated with slower economic growth, the study recommends that South Asian nations should promote domestic savings and investment to lessen their reliance on external debt.

Suggested Citation

  • Sonia Afrin Ale & Md Shafiqul Islam & Hazera-Tun Nessa, 2023. "Does External Debt Affect Economic Growth: Evidence from South Asian Countries," International Journal of Economics and Financial Issues, International Journal of Economics and Financial Issues, vol. 13(1), pages 83-88, January.
    • Handle: RePEc:eco:journ1:2023-01-10
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    References listed on IDEAS

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    Cited by:

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    2. OBAIKE JOHN OJEKA & Tajudeen Egbetunde, 2026. "Debt, institutions, and growth: Exploring the interplay between external debt, institutional quality, investment, and industrial growth," Future Business Journal, Springer, vol. 12(1), pages 1-28, December.
    3. Muhammad Dawood & Zhao Rui Feng & Mingxing Li & Fayaz Hussain Tunio & Noah Cheruiyot Mutai & Zhong Hua Li, 2026. "Foreign Debt and Economic Growth: The Role of Institutional Quality and Financial Development in Asian Developing Countries," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 34(1), pages 161-182, January.
    4. Mihaela Simionescu, 2025. "Public Debt and Economic Growth in the European Union: Lessons for Post-pandemic Period," Politická ekonomie, Prague University of Economics and Business, vol. 2025(6), pages 967-985.
    5. Mohammad Mijanur Rahaman & Md. Monirul Islam & Sergei Nikolaevich Polbitsyn, 2025. "Electrification and Socio-economic Differentiation in South Asia: Do Fiscal and Monetary Policies Matter?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 16(6), pages 18290-18321, December.
    6. Christian Ugwueze Amu & Success Ikechi Kanu & Hilary Chinedu Akuwudike & Kingsley Ikechukwu Okere, 2025. "Exploring the intricate relationship between public debts and economic development in Nigeria," Future Business Journal, Springer, vol. 11(1), pages 1-15, December.
    7. Swati Kaushik & Kiran Lamba, 2026. "Long and Short-run Reconciliation Between External Debt and Economic Growth: An Empirical Evidence from India," Journal of Asian Economic Integration, , vol. 8(1), pages 98-113, April.
    8. Obaike John Ojeka & Tajudeen Egbetunde & Gideon Oseibibi Okoduwa & Aisha Omobolanle Ojeyode & Mumuni Jimoh & Gideon Oladele Ogunbowale, 2024. "Moderating effect of institutional quality on the influence of debt on investment in sub-Saharan Africa," Future Business Journal, Springer, vol. 10(1), pages 1-17, December.

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    Keywords

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    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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