Comparing the Impact of External Debt and Foreign Direct Investment on Pakistan's Economic Growth

Abstract

This research paper is intended to compare the impact of FDI and external debt on Pakistan’s economy. To analyze how (FDI) and external debt have affected Pakistan's economic growth, this article uses gross domestic product (GDP) as a stand-in for an indicator of economic growth. The paper is focused on analyzing which out of both FDI and external debt are contributing towards the economy of Pakistan more. Applied method Pesaran et al. (2001) the ARDL is used to investigate the relationship between the study’s variables. The 29 years from 1991-2019 are investigated and for analysis, data is collected from World Development Indicators (WDI). The findings suggested that external debt had a detrimental effect on Pakistan's economy, although foreign direct investment (FDI) and GDP were discovered to be positively correlated. Johansen's cointegration analysis technique was used to determine the variables' long-term connection with one another along with the ARDL technique. Because few prior research studies have examined the effects of FDI and external debt on the economy of Pakistan, this study is distinctive.