Public Debt and Economic Growth: Evidence from Bangladesh
Bangladesh has been relying heavily on public debt to meet its budget and balance of payment deficit since independence. This study examines how public debt in Bangladesh may influence its economic growth. For this purpose two models, Investment model and Growth model, have been used in this study. The investment model has been used to investigate the potential indirect effect of public debt on economic growth through its impact on investment. In the growth model direct relationship between public debt and economic growth has been examined. The study period is 1974 to 2014. Augmented Dickey-Fuller test has been used to diagnose whether time series data are non-stationary. A TSLS regression is run to estimate those models. The estimated results show that public debt is positively related to both investment and economic growth. The empirical findings also suggest that public debt has an indirect positive effect on growth through its positive influence on investment.
