Impact of External Debt on Economic Growth: a Case Study of Pakistan

Abstract

Since 1980s, the mounting debts and debt payment service of Pakistan due focus and consideration from the Policy makers and economists. This study was additionally done to audit and investigate the effect of external debt overhauling on the development and growth of Pakistan's economy. To hunt the target of research, five variables i.e. Growth, external debt servicing, saving, net export, Foreign Direct Investment were taken to focus their fact association with the GDP or development of the Pakistan's economy. Annual panel data was taken from the source World Bank indicator from the period of 1980 to 2013 and was manipulated through least square multiple regression models. The main variable external debt has significantly negative impact on dependent variable GDP so it‟s concluded that Pakistan should go for the option of debt forgiveness and must invite FDI but not much as their overloading may hurt the economy. Adjusting saving (ADS) highly significant positive relation with GDP reveals that habit of saving extremely boost up economy growth. Exports is basically good to helping hand for economy so they must be lifted up. The impact of external debt is quite hostile on growth so steps must be taken to abolish it in order to growth of economy.