The Dance of Debt and Growth in South Asian Economies: Panel ARDL and NARDL Evidence

Abstract

This article explores the complicated relationship between external debt and economic growth in South Asian IMF member countries, emphasizing the critical role of external debt in financing development while underscoring the necessity of sensible debt management. Using a diverse regional context, including case studies of India, Bangladesh, Sri Lanka, and Pakistan, it highlights the impact of external debt on economic trajectories within distinct national settings. Employing a comprehensive dataset spanning over three decades and utilizing both Panel Autoregressive Distributed Lag (PARDL) and Panel Nonlinear Autoregressive distributed lag (PNARDL) techniques, the study reveals significant insights into short-term, long-term, and asymmetric dynamics in this relationship. The results underline the importance of sustainable borrowing practices and sensible debt management to sustain long-term economic prosperity. Additionally, the article emphasizes the integral role of government stability, the significance of addressing domestic production limitations, and the critical need for price stability. Policy recommendations are offered to guide South Asian nations in optimizing the positive impact of external debt on economic growth while avoiding potential pitfalls. Overall, this research contributes valuable insights for policymakers and scholars, shedding light on the intricate dynamics of economic growth in this region.