Long Run and Short Run Relationship among Gross Domestic Saving, Net Bilateral Foreign Aid, External Debt and Economic Growth in Pakistan

Abstract

This study attempt to establish the long run and short run association among Economic Growth, Foreign Aid, Domestic Saving and External Debt in case of Pakistan for the period of 1980 to 2014. This study uses Gross Domestic Product (GDP) as Dependent Variable followed by Foreign Aid, Domestic Saving and External Debt as explanatory variable. To find the long run and short run association amongst the variables, this study uses Autoregressive Distributive Lags Model (ARDL) and Error Correction Mechanism (ECM). The findings suggest that there exist negative relationship between economic growth and foreign Aid in the long run, while in short run this study found positive association. However, Domestic saving shows negative relationship in the short run while positive relationship with economic growth in the long run. Moreover, external debt displays negative relationship with economic growth equally in long and short run in case of Pakistan.