External Public Debt and Economic Growth in Bangladesh: A Co-Integration Analysis

Abstract

External Debt (ED) is considered as a significant source of income for developing countries. Bangladesh relied on foreign debt to finance its balance of payments deficit and saving investment gap.  This paper tried to investigate the impact of foreign debt on growth in Bangladesh. Rudimentary objective of this paper is to explore the relationship between external debt and Gross Domestic Products in Bangladesh for the period of 1972-2012, using time series econometric technique. We took a point of glance of external debt and economic performance of Bangladesh. The results show that there is a significant adverse effect of debt on growth in Bangladesh. The empirical results suggest the existence of long-run relationship between GDP and ED.  In Bangladesh External debt service is a burden for its nation that makes the GDP slows down. This study recommended that Bangladesh have to figure out the option of debt cancellation and focus on to increase human development as well as infrastructure development. Debt management should be effective, fair,.  Exports, FDI and . Remittances are the key element for the economic growth of Bangladesh and effective, fair debt management are recommended according to the research findings.

Keywords: External Debt (ED), Gross Domestic Product (GDP), Unit Root, Granger Causality, Johansen Co- integration. Remittance