How Can Pakistan Improve its Rising External Debt Situations?

Abstract

This study is an attempt to investigate the role of poverty reduction, income inequality and trade openness in the improvement of external debt situations in Pakistan over the period 1973-2013. ARDL approach has been used to examine relationship among the variables. The results confirm that poverty, inequality, trade openness and unemployment have relationship with external debt in the long-run. However, found no causal relationship between external debt and income inequality, between external debt and unemployment in the short run. The study observes that openness is not favorable in Pakistan context. Reduction in poverty and inequality will increase the possibility of Pakistan entering a virtuous cycle of high growth and sustainable socio-economic development which ultimately will improve external debt situations.