Revisiting the Nexus between External Debt and Economic Growth in the SAARC Countries : A Panel ARDL Approach

The present paper aims to divulge the nexus between external debt and economic growth in five SAARC countries: Bangladesh, India, Nepal, Pakistan and Sri Lanka, for the period 1971 to 2020. The primary investigation of the study reveals significant variation across countries. To consider the short-run and long-run effects of external debt and financial development on economic growth, novel estimation methods of panel ARDL and Granger causality are employed. It is also found that the PMG estimator is more reliable and effective. Empirical results confirm the presence of a long-run relationship between external debt and economic growth. Further, external debt negatively influences economic growth in the SAARC countries in long run as well as in the short run. Finally, the results of Granger causality reveal bi-directional causality among the variables. The findings suggest that the economic policies relating to the external debt of these countries should be defined by considering the financial sector of these countries. Further, the findings of the study offer useful insights for the policymakers of these countries