Trade Openness, External Debt and Growth Nexus in Pakistan: Empirical Evidence from ARDL Modeling Approach & Co-Integration Causality Analysis

Abstract

This Empirical study Explores the Influence of trade openness and external debt on economic growth by using time series data from 1974 -2016. Gross domestic Product (GDP) as dependent variable while Foreign Direct Investment, Inflation, External debt, Capital formation and Trade as explanatory variable are used. Unit Root Test applies to check the stationary of data in which GDP & INF are integrate at level 1(0) while the channel of variables like FDI, T, ED, CF are integrate at 1stdifference. Auto-regressive distributed lagged model (ARDL) technique applies for estimation. The study finds out the relation between channels of variable that how these variables are interrelated. The findings indicate that External debt and capital formation has Inverse influence on Economic growth while Trade Openness, Inflation, foreign Direct Investment has positive impact on economic growth.