Choice Between Domestic and Foreign Debt: A Case Study of Pakistan

Ghazala Zafar Lashari; Muhammad Akbar; Ruhma Khan

doi:doi:10.11648/j.ijefm.20170506.12

| Peer-Reviewed

Choice Between Domestic and Foreign Debt: A Case Study of Pakistan

Ghazala Zafar Lashari, Muhammad Akbar, Ruhma Khan

Published in International Journal of Economics, Finance and Management Sciences (Volume 5, Issue 6)

Received: 28 July 2017 Accepted: 8 August 2017 Published: 15 November 2017

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

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.

Published in	International Journal of Economics, Finance and Management Sciences (Volume 5, Issue 6)
DOI	10.11648/j.ijefm.20170506.12
Page(s)	284-293
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Domestic Debt, Foreign Debt, Debt Servicing, Real GDP, ARDL

References

[1]	Abbas, S. M. A. and J. E. Christensen (2007). “The Role of Domestic Debt Markets in Economic Growth: An Empirical Investigation for Low-income Countries and Emerging Markets”. IMFW/P 7/27.
[2]	Amassoma, D. (2011). "External Debt, Internal Debt and Economic Growth Bound in Nigeria using a Causality Approach." Current Research Journal of Social Sciences 3(4): 320-325.
[3]	Atique, R. and K. Malik (2012). "Impact of Domestic and External Debt on the Economic Growth of Pakistan." World Applied Sciences Journal 20(1): 120-129.
[4]	Barro, R. J. (1974). "Are Government Bonds Net Wealth?" Journal of Political Economy 82(6): 1095-1117.
[5]	Barro, R. J. (1991). "Economic Growth in a Cross Section of Countries." The Quarterly Journal of Economics 106(2): 407-443.
[6]	Beaugrand, P., et al. (2002). "The Choice Between External And Domestic Debt In Financing Budget Deficits: The Case Of Central And West African Countries." International Monetary Fund 2(79): 1-30.
[7]	Bloomstrom, et al. (1996). "Is Fixed Investment The Key to Economic growth." Quarterly Journal of economics 108: 809-842.
[8]	Calero (2008). "Remittances, Liquidity Constraints and Human Capital Investments In Ecuador." World Development. Discussion 3358.
[9]	Chenery, H. B. and A. M. Strout (1966). "Foreign Assistance and Economic Development” The American Economic Review 56(4): 679-733.
[10]	Diamond, P. A. (1965). "National Debt in a Neoclassical Debt Model." Journal of Political Economy 55(5): 1126-1150.
[11]	Faridi, M. Z., Nasim, I and Bashir, F. (2015). "An Analysis of Exploring the Relationship between Foreign Inflows and Sectoral Output of Pakistan" European Journal of Business and Management 7(22): 72-77.
[12]	Hameed, A., Ashraf, H., Chaudhary. M. A (2008). "Exteranl Debt and its impact on Economic and business Growth in Pakistan." International Research Journal of Finance and Economics 20: 132-140.
[13]	Harbison, H. F. (1962). "Human Resources Development Planning in Modernizing Economies." International Labor Review: 453-458.
[14]	Iqbal, A., et al. (2015). "Investigating The Role of External Trade and Extral Debt on Economic Growth of Pakistan." Journal of Bussiness of Studies 11(1): 27-39.
[15]	Iqbal, Z. and Sattar, A. (2005). "The Contribution Of Workers' Remittances To Economic Growth In Pakistan." Pakistan Institute of Development Economics. Research Report 187.
[16]	Jebran, K., et al. (2016). "Public Debt And Economic Growth In Pakistan: A Reassessment." Pakistan Business Review: 307-324.
[17]	Johnson, A. O. (2000). "Human Capital Development and Economic Growth in Nigeria." European Journal of Business and Management 3 (9): 1-11.
[18]	Johnson, A. O. (2011). "Human Capital Development and Economic Growth in Nigeria." European Journal of Business and Management 3 (9): 29-38.
[19]	Jongwanich, J. (2007). "Remittance Economic Growth and poverty in Developing Asia and the Pacific Countries." UNESCAP. Working Paper No. 7 (1).
[20]	Khan, M. and Reinhart. C. M. Sand (1990). "Private Investment and Economics Growth in Developing Countries." World Development 18: 19-27.
[21]	Kirkpatrick, C. (2000). "Financial Development, Economic Growth and Poverty Reduction" The Pakistan Development Review 39(4): 363-388.
[22]	Kohlchen, E. (2007). "Domestic Vs External Sovereign Debt Servicing: An Empirical Analysis." The University Of Warwick: 1-28.
[23]	Maana, I., Raphael, O. and Nahashon, M. (2008). "Domestic Debt and the Growth of Nigerian Economy." Annual African Econometric society.
[24]	Malik, S., M. K. Hayat and M. U. Hayat. (2010). "External Debt and Economic growth: empirical Evidence from Pakistan." International Research Journal of Finance and Economic 44: 89-97.
[25]	Matiti, C. (2013). "The Relationship Between Public Debt And Economic Growth In Kenya." International Academic Journal of Information Sciences and Project Management 1(1): 65-86.
[26]	Mincer, J. (1958). "Investment in Human Capital and Personal income Distribution" Journal of Political Economy 66(4): 281-302.
[27]	Muhdi and K. Sasaki (2009). "Roles of External and Domestic Debt in Economy: Analysis of a Macroeconometric Model for Indonesia." Interdisciplinary Information Sciences 15(2).
[28]	Najid and L. M. Ahmad (2012). "Returns to Education In Developing Countries: A Case Study Of Pakistan." Asian Journal Of Research In Business Economics And Management: 217-222.
[29]	Ogiriki, T. and P. W. Andabai (2014). "Financial Intermediation and Economic Growth in Nigeria, 1988 - 2013: A Vector Error Correction Investigation" Mediterranean Journal of Social Sciences 5(17).
[30]	Otani, Ichiro and Villanueva (1996). "Major Determinants of Long Run Growth in LDCs." Finance and Development 26: 41-43.
[31]	Patnaik, P. and C. P. Chandrasekhar (1996). "Investment, Exports and Growth: A Cross-Country Analysis." Economic and Political Weekly 31(1): 31-36.
[32]	Pesaran, M. H., et al. (2001). "Bounds testing approaches to the analysis of level relationships." Journal of Applied Econometrics 16: 289-326.
[33]	Rais and Tanzeela (2010). "Public Debt and Economic Growth in Pakistan. A Time Series Analysis." Academic Research International 2(1): 535-544.
[34]	Rais, S. I. and T. Anwar (2012). "Public Debt And Economic Growth In Pakistan: A Time Series Analysis From 1972 To 2010" Academic Research International 2(1).
[35]	Schultz, W. T. (1961). "Investment in Human Capital." The American Economic Review 51: 1-17.
[36]	Shah, M. H. and S. Pervin (2012). "External Publi C Debt And Economic Growth: Empirical Evidence From Bangladesh, 1974 To 2010" Academic Research International 2(3).
[37]	Shahzad, H. and A. Y. Javid (2015). "Impact of Debt on Aggregate Investment and Productivity in Developing Asian Countries." Pakistan Institute of Development Economics 127.
[38]	Sheikh, M. R., Faridi, M. Zahir and Tariq, K. (2010). "Domestic Debt and Economic Growth in Pakistan: An Empirical Analysis." Pakistan Journal of Social Sciences 30(2): 373-387.
[39]	Singh, S. K. (2014). Public Finance in Theory and Practice. New Dehli ,India, S. Chand & Company Ltd.
[40]	Stark and Lucas. R (1988). "Migration, Remittances and Family Economic Development and Cultural Change." 31(1): 191-196.
[41]	Taylor, J. E. (1992). "Remittances and Inequality Reconsidered; Direct, Indirect and International Effects." Journal of Policy Modeling 14(2): 187-208.
[42]	Wani, N. U. H. and H. Kabir (2016). "An evaluation of relationship between public debt and economic growth: A study of Afghanistan." Munich Personal Re PEc Archive.
[43]	Woodruff, C. and Zenteno, R. M. (2004). "Remittances and Micro Enterprises in Mexico." Graduate School of International Relations and Pacific Studies, University of California.
[44]	Young, O. D. (2002). "Stage of Economic Development, Exports, and Economic Growth: An Empirical Investigation." The African Economic and Business Review 3(1): 60-69.

Cite This Article

Plain Text BibTeX RIS

APA Style

Ghazala Zafar Lashari, Muhammad Akbar, Ruhma Khan. (2017). Choice Between Domestic and Foreign Debt: A Case Study of Pakistan. International Journal of Economics, Finance and Management Sciences, 5(6), 284-293. https://doi.org/10.11648/j.ijefm.20170506.12

Copy | Download

ACS Style

Ghazala Zafar Lashari; Muhammad Akbar; Ruhma Khan. Choice Between Domestic and Foreign Debt: A Case Study of Pakistan. Int. J. Econ. Finance Manag. Sci. 2017, 5(6), 284-293. doi: 10.11648/j.ijefm.20170506.12

Copy | Download

AMA Style

Ghazala Zafar Lashari, Muhammad Akbar, Ruhma Khan. Choice Between Domestic and Foreign Debt: A Case Study of Pakistan. Int J Econ Finance Manag Sci. 2017;5(6):284-293. doi: 10.11648/j.ijefm.20170506.12

Copy | Download

@article{10.11648/j.ijefm.20170506.12,
  author = {Ghazala Zafar Lashari and Muhammad Akbar and Ruhma Khan},
  title = {Choice Between Domestic and Foreign Debt: A Case Study of Pakistan},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {5},
  number = {6},
  pages = {284-293},
  doi = {10.11648/j.ijefm.20170506.12},
  url = {https://doi.org/10.11648/j.ijefm.20170506.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20170506.12},
  abstract = {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.},
 year = {2017}
}

Copy | Download

TY - JOUR
T1 - Choice Between Domestic and Foreign Debt: A Case Study of Pakistan
AU - Ghazala Zafar Lashari
AU - Muhammad Akbar
AU - Ruhma Khan
Y1 - 2017/11/15
PY - 2017
N1 - https://doi.org/10.11648/j.ijefm.20170506.12
DO - 10.11648/j.ijefm.20170506.12
T2 - International Journal of Economics, Finance and Management Sciences
JF - International Journal of Economics, Finance and Management Sciences
JO - International Journal of Economics, Finance and Management Sciences
SP - 284
EP - 293
PB - Science Publishing Group
SN - 2326-9561
UR - https://doi.org/10.11648/j.ijefm.20170506.12
AB - 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.
VL - 5
IS - 6
ER -

Copy | Download

Author Information

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

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Ghazala Zafar Lashari, Muhammad Akbar, Ruhma Khan. (2017). Choice Between Domestic and Foreign Debt: A Case Study of Pakistan. International Journal of Economics, Finance and Management Sciences, 5(6), 284-293. https://doi.org/10.11648/j.ijefm.20170506.12

Copy | Download

ACS Style

Ghazala Zafar Lashari; Muhammad Akbar; Ruhma Khan. Choice Between Domestic and Foreign Debt: A Case Study of Pakistan. Int. J. Econ. Finance Manag. Sci. 2017, 5(6), 284-293. doi: 10.11648/j.ijefm.20170506.12

Copy | Download

AMA Style

Ghazala Zafar Lashari, Muhammad Akbar, Ruhma Khan. Choice Between Domestic and Foreign Debt: A Case Study of Pakistan. Int J Econ Finance Manag Sci. 2017;5(6):284-293. doi: 10.11648/j.ijefm.20170506.12

Copy | Download

@article{10.11648/j.ijefm.20170506.12,
  author = {Ghazala Zafar Lashari and Muhammad Akbar and Ruhma Khan},
  title = {Choice Between Domestic and Foreign Debt: A Case Study of Pakistan},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {5},
  number = {6},
  pages = {284-293},
  doi = {10.11648/j.ijefm.20170506.12},
  url = {https://doi.org/10.11648/j.ijefm.20170506.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20170506.12},
  abstract = {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.},
 year = {2017}
}

Copy | Download