Exploring the Channels and Impact of Debt on Economic Growth in South Asia

Nisma Riffat and Kashif Munir

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates the existence of non-linear relationship between debt and economic growth in South Asia and explored the channels through which debt has its nonlinear impact on the growth of economy. Panel data on four South Asian countries over the period of 1991 to 2013 utilized and fixed effect model employed for estimation. The results suggest that there is nonlinear relationship between debt and economic growth in South Asian countries and the channels through which debt transmits impact into the economy are private investment, public investment and total factor productivity. The government should stimulate the revenue generation and reduce its huge current expenditures. Reducing debt accumulation alone will not rectify the problem unless the supplementary macroeconomic policies are made sound. By removing political constraints, macroeconomic imbalances, improving governance, reducing dependency on foreign aids and eliminating structural distortions, the problem of debt can be resisted.

Keywords: Debt; Economic Growth; Investment; Total Factor Productivity; South Asia (search for similar items in EconPapers)
JEL-codes: C23 H6 O47 (search for similar items in EconPapers)
Date: 2015-09-21
New Economics Papers: this item is included in nep-fdg and nep-mac
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Citations: View citations in EconPapers (2)

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