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External Debt Distress in South Asia: Evidence from Panel Data Analysis

Shujaat Abbas (), Shahida Wizarat and Sadia Mansoor

South Asian Journal of Macroeconomics and Public Finance, 2020, vol. 9, issue 2, 221-236

Abstract: This study is an attempt to explore social and economic determinants of external debt distress in five selected South Asian countries, that is, Bangladesh, India, Nepal, Pakistan and Sri Lanka, from 1980 to 2018, by using the contemporary panel fixed effect model and system generalized methods of moments. The findings revealed that the major determinants of external debt distress in selected South Asian countries are large and increasing current account deficits, lower gross capital formation, foreign direct investment and large military expenditures. Among selected socio-economic variables, the increase in life expectancy increases external debt distress, whereas urbanization reduces it considerably. The study urges selected South Asian countries to correct highly unfavourable current account balance, resolve regional conflicts leading to the reduction of the arms race and make the macroeconomic environment friendly for domestic and foreign investment to reduce exploding external debt distress. JEL Classification: C33, E22, F32, H63

Keywords: External debt; social and economic determinants; panel data; South Asia (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1177/2277978720966485

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Handle: RePEc:sae:smppub:v:9:y:2020:i:2:p:221-236