Domestic Debt and Economic Growth Sustainability Nexus: An Empirical Analysis of Pakistan Economy

Abstract

This study is an attempt to make an assessment for the domestic debt and sustainable economic growth nexus for the Pakistan economy. In the absence of the forthcoming sustenance of the domestic debt, internal financial mobilization may prove to be a profligate strategy. This research investigates that either domestic debt has been a catalyst to foster the economic growth sustainability or otherwise. The time series data is considered spanning from 1990 to 2021. To obtain the empirical evidence of the research, Johansen Conintegration, Auto Regressive Lag Model (ARDL) and Granger Causality techniques are applied. The findings of model 1, imply the long run association among the variables. Finding shows that historical pattern of the fiscal deficit and exchange rate positively influence the current level of domestic debt whereas interest rate leaves positive footprints on the domestic debt as well. Findings of the Model 2, explain that domestic debt is not contributing to achieve the sustainable economic growth and necessitate adequate handling while keeping in view the future generations.