External Debt, Inflation Rate, And Economic Growth In Pakistan

Abstract

High external debt with high inflation rates are considered adverse economic growth factors. Therefore, this analysis aims to explore the impact of external debt and inflation rate on economic growth in Pakistan by using annual time series data from 1981 to 2020. The study uses the ADF test and ARDL model for data analysis. The analysis shows that external debt and the inflation rate negatively and significantly influence the economic growth in Pakistan. The variables of gross savings and the agriculture sector are found to be positive and significant factors of economic growth. It is concluded that external debt and inflation rates adversely impact Pakistan's economy. Hence, efforts need to be made to better utilize external debt and keep the inflation rate in a single digit.