Impact of Public Debt Burden on Economic Growth: Evidence from Bangladesh

Journal of Finance and Banking, Vol. 10, No. 1 & 2, June-December 2012, University of Dhaka, Bangladesh

13 Pages Posted: 13 Mar 2015 Last revised: 10 May 2019

See all articles by Tahmina Akhter

Tahmina Akhter

University of Dhaka

Hashibul Hassan

Jagannath University - Department of Finance; Monash University - Department of Economics

Date Written: December 1, 2012

Abstract

Bangladesh is relying heavily on public debt to meet the budget deficit since its independence. In this paper, the objective is to find out whether the government of Bangladesh is excessively borrowing from the public sources and thus negatively affecting the economy of the country. For this purpose two models - Public Debt Model and Growth Model, have been used in this study. The Debt Model has been used to identify the nature and extent relationship of total public debt with the variables - total consumption, manufacturing sector growth, tax revenue, subsidy, net export and total government stock. In the Debt Model impact of domestic debt and external debt on the GDP growth rate of Bangladesh has been captured. The study period is 1980-81 to 2011-12. Augmented Dickey-Fuller test has been used to diagnose whether the time series data are non-stationary. Then on the basis of the result of Johansen co-integration test, Error Correction Model (ECM) and Vector Error Correction Model (VECM) have been used to find out the long term association between each set of variables. The study shows that a significant positive relationship exists between total public debt & investment and between total public debt & government’s reserves. On the other hand a negative relationship exists with manufacturing sector and government subsidy. However no strong statistical evidence has been found regarding the negative impact of external debt on the GDP growth. But with domestic debt it has been found negative relationship with little statistical significance.

Keywords: Public Debt Burden, Economic Growth, Domestic Debt, External Debt

JEL Classification: C22, H68, R42, E62, O11

Suggested Citation

Akhter, Tahmina and Hassan, Md. Hashibul, Impact of Public Debt Burden on Economic Growth: Evidence from Bangladesh (December 1, 2012). Journal of Finance and Banking, Vol. 10, No. 1 & 2, June-December 2012, University of Dhaka, Bangladesh. Available at SSRN: https://ssrn.com/abstract=2577214

Tahmina Akhter

University of Dhaka ( email )

Bangladesh
+88029661937 (Phone)

Md. Hashibul Hassan (Contact Author)

Jagannath University - Department of Finance ( email )

Dhaka
Bangladesh

HOME PAGE: http://www.jnu.ac.bd

Monash University - Department of Economics ( email )

Australia

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