An Econometric Analysis of Determinants of External Debt in Pakistan

Present study examined macroeconomic determinants of external debt in Pakistan using annual time series data from 1976 to 2010.Cointegration technique has been used to find long run equilibrium relationship while short run dynamics have been analyzed using ECM. By applying ARDL model results depicted that Fiscal deficit, Nominal exchange rate and Trade openness are statistically significant determinants of external debt as they increase the debt burden of Pakistan. Foreign aid is also positively related to external debt but statistically insignificant. In contrast Terms of trade are negatively related to external debt being statistically insignificant.