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Impact of Trade Liberalization on External Debt Burden: Econometric Evidence from Pakistan


  • Zafar, Sabahat
  • Butt, Muhammad Sabihuddin


Pakistan’s leading challenge today is to lessen its debt burden in order to pursue a path that leads towards sustainable and impartial growth for poverty diminution. The consequences of trade liberalization are of growing concern, mainly in the emerging economies with severe brim over effects on their debt situation. The major objective of this paper is to discuss the current external debt problem in Pakistan and analyze how its external debt is interrelated with trade liberalization policies and measures .Using data from the last three decades, this paper investigated whether there exist a momentous relationship between external debt and the trade liberalization variables or not. In this case study ARDL bounds testing approach is employed to investigate the long run relationships and Error Correction Method (ECM) for short run dynamics. After finding the order of integration through implementing the Augmented Dickey Fuller (ADF) and Phillips-Perron unit root tests, our finding suggested a significant long run positive association between external debt and trade liberalization is existed in case of Pakistan

Suggested Citation

  • Zafar, Sabahat & Butt, Muhammad Sabihuddin, 2008. "Impact of Trade Liberalization on External Debt Burden: Econometric Evidence from Pakistan," MPRA Paper 9548, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:9548

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    References listed on IDEAS

    1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    2. 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.
    3. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    4. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    Cited by:

    1. William Gabriel Brafu-Insaidoo, 2017. "Determinants of Short-Term Foreign Debt in Ghana," Research Papers RP_335, African Economic Research Consortium.
    2. repec:sos:sosjrn:170411 is not listed on IDEAS
    3. Evan Lau & ALVINA SYN-YEE Lee & MOHAMMAD AFFENDY Arip, 2015. "Macroeconomics Determinants Of External Debt In Malaysia," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 4(4), pages 14-26, December.

    More about this item


    External Debt; Trade Liberalization; ARDL Bounds Testing; Error Correction Method;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F0 - International Economics - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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