The Role of Foreign Direct Investment, Gross Domestic Product, Trade Openness Exchange Rate and Political Regimes on Pakistan’s External Debt: An Evidence From ARDL Approach

Abstract

This study employs the Autoregressive Distributed Lag (ARDL) approach to investigate the impacts of foreign direct investment (FDI), gross domestic product (GDP), trade openness, exchange rate, and political regimes on the external debt of Pakistan. Time series data from 1977 to 2022 is utilized, with external debt as the dependent variable, and FDI, GDP, trade openness, exchange rate, and political regimes as the independent variables. The findings reveal that external debt, FDI, GDP, trade openness, and political regimes significantly impact the current values of external debt. However, the exchange rate was found to have an insignificant impact on external debt. These results highlight the importance of prudent borrowing practices, attracting FDI, promoting economic growth, ensuring trade openness, and maintaining political stability in managing external debt. The insignificant impact of the exchange rate suggests that policymakers should prioritize other factors when formulating strategies for debt management and economic development.