The Effects of Public Debt on Economic Growth in Bangladesh: An Evidence from the ARDL Bound Testing Approach

Kazi Mezbah Uddin Ahamad* and Md. Mominul Islam
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Kazi Mezbah Uddin Ahamad*: Lecturer, Department of Economics, Mawlana Bhashani Science and Technology University, Tangail-1902, Bangladesh
Md. Mominul Islam: Department of Economics, Mawlana Bhashani Science and Technology University, Tangail-1902, Bangladesh

International Journal of Economics and Financial Research, 2020, vol. 6, issue 5, 87-95

Abstract: Public debt is intended to bridge the gap between domestic savings and investment. This paper examines the effect of public debt on economic growth in Bangladesh using autoregressive distributed lag bound testing approach to cointegration. It finds a negative relationship between public debt and economic growth both in the short-run and the long-run. That is, a significant rise in the public debt in Bangladesh appears to be a burden for the economic growth controlling for other determinants of growth. The findings suggest that funds obtained through public debt are not utilized in the productive economic avenues which may improve the growth scenario in Bangladesh. Also, the adverse effect exerted by public debt may further be responsible for a reduction in investment and slower growth of capital stock, which eventually can hamper the labour productivity growth in the country in long run.

Keywords: Economic growth; Public debt; Gross capital formation; Debt service (search for similar items in EconPapers)
Date: 2020
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