Impact of External Debt on Economic Growth: Comparative Analysis of Pakistan and India

Abstract

The study aims to investigate the impact of external debt on economic growth by using the time series data of Pakistan and India over the time period 1981 to 2023. The study used the Autoregressive Distributed Lag Model to determine the factors that affect the economic growth. The study has taken GDP Growth as dependent variable while total external debt, labor force participation, gross fixed capital formation and GDP deflator were taken as independent variables. The study also used the CUSM and CUSMSQ test to check the stability of linear regression model. The outcomes showed that the external debt negatively associated with GDP growth of Pakistan and India but Pakistan facing the adverse effects of external debt on their economy. The results recommended that the India should prioritize inflation control measure because inflation has much stronger negative effect on the GDP growth and Pakistan concentrate on managing external debt to reduce its adverse effects on growth.