Debt Led Economic Growth versus Trade Led Economic Growth in Selected South Asian States

Abstract

The central idea of the paper is to explore whether the public debt and international trade foster the economic growth or otherwise. This study is categorized into two separate models, Model 1 ponders the elements of Debt Led economic growth whereas Model 2 considers the components of Trade Led economic growth. Findings of Model 1 using GMM indicate that domestic debt to gross domestic product ratio is positively but insignificantly impacts economic growth whereas external debt to gross domestic product ratio affects the economic growth adversely. Model 2 findings explicate that exports to gross domestic product ratio holds positive as well as significant connection with economic growth while imports to gross domestic product is undesirably and significantly correlated with economic growth. To end with, this study proposes to formulate a prudent trade policy which will further benefit economies to have stable exchange rate and less dependence on public debt.