Choice Between Domestic and Foreign Debt: A Case Study of Pakistan
International Journal of Economics, Finance and Management Sciences
Volume 5, Issue 6, December 2017, Pages: 284-293
Received: Jul. 28, 2017; Accepted: Aug. 8, 2017; Published: Nov. 15, 2017
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Ghazala Zafar Lashari, Department of Economics, Women University of Azad Jammu and Kashmir Bagh, Bagh, Pakistan
Muhammad Akbar, Department of Economics, Bahauddin Zakariya University, Multan, Pakistan
Ruhma Khan, Institute of Management Sciences, Bahauddin Zakariya University, Multan, Pakistan
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In Pakistan, domestic debt, foreign debt and debt servicing is the most discussed issue among the economists and policy makers. Pakistan has been taking a substantial amount of money in the form of domestic and foreign debt since 1970’s. Most common reason of debt dependency is saving-investment gap and revenue–expenditure gap. To fill these gaps, debts has become a common source. High level of debt servicing left no room for policy makers to carry out macroeconomic reforms in order to increase GDP growth rate. The present study has been conducted to investigate the choice between domestic and foreign debt in promoting economic growth. Auto regressive Distributed Lag (ARDL) approach has been used in the study for the data set from 1972-2010. It is found that both foreign and domestic debt servicing have negatively influenced the economic growth. In the light of the findings of this study, it is suggested that Pakistan should not rely on both external and internal debts to fulfill its gaps. Policy makers should use the policy of maximum revenue generation through domestic resource utilization, divert public expenditure from consumption to investment, promote tax culture and investment in human capital is much needed to reduce dependence on debts.
Domestic Debt, Foreign Debt, Debt Servicing, Real GDP, ARDL
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Ghazala Zafar Lashari, Muhammad Akbar, Ruhma Khan, Choice Between Domestic and Foreign Debt: A Case Study of Pakistan, International Journal of Economics, Finance and Management Sciences. Vol. 5, No. 6, 2017, pp. 284-293. doi: 10.11648/j.ijefm.20170506.12
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