Abstract
Economic theory suggests that a realistic level of borrowing is beneficial for both developing and developed economies in achieving sustainable level of economic growth. However, as a result of insufficient domestic resources to fund the “development projects”, required for the economic progress, most of the countries strongly rely on internal (domestic) and external (international) capitals such as public debt, foreign direct investment (FDI) and remittances. Keeping in mind this significance, this study analyzes the role of public debt, FDI and remittances in accelerating the economic growth in Switzerland. For getting this purpose achieved, the study gathers the data from world development indicators (WDI) for the period of 1997-2016. The study uses public debt, FDI and remittances as predictors, while economic growth is taken as outcome variable. The study applies auto regressive distributive lag (ARDL) model to analyze the data. Results of the study show positive influence of public debt, FDI and remittances on the economic growth of Switzerland which is in line with the economic theory. Based on the findings, the study suggests articulating and implementing policies aimed at attracting more inflows of foreign capital that will positively contribute to economic growth in the long run. The study furthers the government of Switzerland to keep debts to the GDP threshold as low as possible.
Highlights
Economic growth is the issue of prime concern of governments of both developed and developing economies
Economic theory suggests that a realistic level of borrowing is beneficial for both, developing and developed nations to achieve the sustainable level of economic growth
public debt (PD) is measured as central government debt, foreign direct investment (FDI) is measured as net inflows and remittances are measured as %age of GDP; and Economic Growth (EG) is measured as annual %
Summary
Economic growth is the issue of prime concern of governments of both developed and developing economies. After the second world war, many countries (including developing and developed) depends on the internal or external borrowing to deal with the global economic recession, and to fund their budget deficits. Due to this borrowing, most of the countries face temporary relief from the economic problems i.e., S-I gap, unemployment etc., but it imposes long term detrimental effects on the economic growth (EG) in early 2000 in some developing economies. Other researchers indicated the negative relationship between PD and EG by indicating the harmful effects of PD for the economic development (Panizza & Presbitero, 2014; Rais & Anwar, 2012)
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