Journals Information
Advances in Economics and Business Vol. 12(2), pp. 9 - 21
DOI: 10.13189/aeb.2024.120201
Reprint (PDF) (976Kb)
The Impact of External Debt on Economic Growth in Bangladesh: An ARDL Bounds Testing Approach
Md Imran Hossain Milon , Mohammad Abdul Hannan Pradhan *, Mahmuda Sultana
Department of Economics, Shahjalal University of Science and Technology, Bangladesh
ABSTRACT
The relationship between external debt and economic growth is crucial for developing countries. Furthermore, external debt is considered a double-edged sword for emerging nations like Bangladesh. Excessive borrowing may lead to severe financial challenges rather than enhancing economic growth and stability. In addition, the obligation to repay this debt results in a wide range of myopic policies that are extremely harmful to achieving sustainable development goals. Bangladesh has experienced a substantial and rapid increase in its external debt in recent years. Hence, it is essential to evaluate its effect on economic growth. This research investigated the influence of external debt on economic growth by utilizing annual time series data from 1976 to 2019, as well as the Autoregressive Distributed Lag (ARDL) bounds testing method. The findings reveal a negative and significant influence of external debt on economic growth both in the short and long run. These results authenticate the debt overhang effect, where high levels of debt hinder economic performance by creating uncertainty and discouraging investment. Further, trade and human capital have a significant positive impact on economic growth in the long run. Conversely, gross fixed capital formation and population growth have no significant effects on long-term economic growth. The country's government might diminish its dependency on external debt, maintain a favorable market structure, and enhance trade openness and investment in human capital to augment its economic growth.
KEYWORDS
External Debt, Economic Growth, Debt Overhang, Human Capital, Trade Openness, ARDL Model
Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Md Imran Hossain Milon , Mohammad Abdul Hannan Pradhan , Mahmuda Sultana , "The Impact of External Debt on Economic Growth in Bangladesh: An ARDL Bounds Testing Approach," Advances in Economics and Business, Vol. 12, No. 2, pp. 9 - 21, 2024. DOI: 10.13189/aeb.2024.120201.
(b). APA Format:
Md Imran Hossain Milon , Mohammad Abdul Hannan Pradhan , Mahmuda Sultana (2024). The Impact of External Debt on Economic Growth in Bangladesh: An ARDL Bounds Testing Approach. Advances in Economics and Business, 12(2), 9 - 21. DOI: 10.13189/aeb.2024.120201.