Abstract
This study tries to analyse the impact of internal and external debt on economic growth in India during the period 1980–2014. Employing ARDL technique of co-integration, the study finds the negative impact of both internal as well as external debt on Indian economy in long run, thereby controlling for other variables namely trade openness, investment and population growth. The results of the error correction model (ECM) show that internal debt, external debt, investment, population growth and trade openness affect the economic growth both in short and long run. The relationship between debt (both internal and external) and economic growth turns out to be negative in long run. However, the short-run impact of internal debt is fluctuating; whereas external debt is negatively related to growth.
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Notes
- 1.
Internal debt mostly consists of borrowing through market loans, treasury bills, special securities issued to Reserve Bank of India (RBI) special bearer bonds, other bonds and securities issued to international financial institutions.
- 2.
External debt component consists of multilateral and bilateral borrowing, which are concessional and non-concessional and government and non-government further, also includes borrowings from IMF, long-term borrowings, short-term and commercial borrowings.
- 3.
India adopted reforms of liberalization, globalization and urbanization in 1991.
- 4.
Other control variables included total factor productivity, exports, labour force, investment, debt service. Model by Bal and Rath (2014) differs from the model in this study as they took both external and internal debt in one equation of growth. However, both these debt variables are expected to have a very strong correlation and hence my model has two separate equations to test the impact of each of these debt factors on growth.
- 5.
Sum of exports and imports is referred as trade openness variable, signified as trade.
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Pahwa, N. (2017). Impact of Debt on Short-Run and Long-Run Growth: Empirical Evidence from India. In: Kamaiah, B., Shylajan, C., Seshaiah, S., Aruna, M., Mukherjee, S. (eds) Current Issues in Economics and Finance. Springer, Singapore. https://doi.org/10.1007/978-981-10-5810-3_1
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