Public Debt and Economic Growth in Bangladesh: Evidence from Granger Causality

Abstract

Whether the public debt is disastrous for accelerating economic growth in a developing country is an important empirical question in  the present world. In order to analyzing the dynamic relationship between public debt and economic growth in Bangladesh, yearly  data of Real GDP and external debt outstanding from 1970 to 2016 have been covered in this study. In this regard, multivariate time  series techniques have been employed and it is found that public debt is cointegrated with economic growth in Bangladesh. This study  finds a short-run as well as the long-run association between the economic growth and the public debt. Moreover, the results of  this study also uncover that public debt causes the economic growth in Bangladesh. However, government should be careful of  spending money and once prepares the deficit budget, reduce the dependency on the public debt, especially on the external sources.