Determinants of Economic Growth: Case Analysis of Pakistan's Economy

Abstract

Pakistan is among the developing countries in South Asia, that has to rely strongly on both internal and the external debt to meet the budget deficits. In our country, as compared to the foreign capital flow domestic debt is easily available. This research investigates the key determinants of economic growth in the country by considering the period of 1996 to 2010, using regression analysis and correlation matrix. Based on the analysis and the findings, the research indicates that the stock of public debt has a positive contribution in Pakistan. Therefore, we can say that resources and the finances generated with the help of domestic debt collection are utilized to some extent, to finance those expenditures of the government which contributes to the economic growth in Pakistan. The study also reveals that, on the other hand domestic debt servicing had an inverse relationship with growth. This is because of the fact that huge burden of non-development expenditure hinder and delays growth in the long run, due to the large tax repayments, which reduce savings. My research findings reveal that the negative impact of domestic debt servicing overcomes the positive effect of domestic debt. Strategies for the settlement of the due domestic debt are also discussed in this paper.