Debt Burden and Its Impact on

GDP of Pakistan

(Research Paper-ECON-406)

By
MARYAM ANWAR
College Roll Number 9616
Punjab University Roll Number 012736
Supervised By
Tauseef Sadiq
ECONOMICS DEPARTMENT
GOVT. M.A.O COLLEGE LAHORE
 CERTIFICATE

The work contained in this research paper titled “DEBT BURDEN AND IT’S

IMPACT ON GDP IN PAKISTAN: CO-INTEGRATION TEST APPROACH” submitted by

MARYAM ANWAR, BS Economics, PU Roll number 012736 session 2014-2018 is accepted

as confirming to the required standard in partial fulfillment of the requirement for the degree of

BS Economics.

______________________

SUPERVISOR
Prof. Tauseef Sadiq
Assistant Professor of Economics
Govt. MAO College, Lahore.

______________________
External Examiner
…………………….
Professor of Economics

_______________________
Chairperson
Muhammad Ejaz
Assistant Professor of Economics
Govt. MAO College, Lahore.
 DECLARTION

I, MARYAM ANWAR Roll No 012736, student of BS in the subject of Economics,

session 2014-2018, hereby declare that the printed material in this research paper titled “DEBT

BURDEN AND IT’S IMPACT ON GDP IN PAKISTAN: CO-INTEGRATION TEST

APPROACH” is my own research work and not yet been printed, published and submitted as

Research work, thesis or publication in any form in any university or in any Research institution

in Pakistan or elsewhere.

MARYAM ANWAR
 DEDICATED

This research paper dedicated to

MY MOTHER
 ACKNOWLEDGMENT

Firstly, I would like to thank Almighty ALLAH for giving me courage to complete this

research project. Apart from my own efforts, the success of my study depends largely on the

encouragement and guidelines of many others who have always given their valuable advice or

lent a helping hand. I sincerely appreciate the inspiration; support and guidance of all those

people who have been instrumental in the successful completion of this study.

I would like to express my profound gratitude and deep regards to my Teacher namely Prof.

Irshad, Prof. Muhammad Ejaz, Prof. Asif, Prof. Nadia, Prof. Imran for their exemplary

guidance, monitoring and constant encouragement throughout the study duration. I also express

my gratitude to my research supervisor Prof. Tauseef Sadiq for the useful comments, remarks

and engagement through the learning process of this study and also for providing all facilities

and support to meet my study requirements.

I also acknowledge my class fellows who have willingly helped me out with their abilities in

class room and out of class room.

At last but not least a special thanks to my family.

MARYAM ANWAR
 ABSTRACT

This research paper investigates the relationship between GDP, investment,

external and domestic debt in case of Pakistan. The study covers the period 1986-2015. The

stationary properties of time series data are examined by using Augmented Dickey-Fuller (ADF)

tests. Co-integration and Vector Error Correction (VECM) models are applied to find out short-

run and long-run relationship among explanatory variables. The findings test shows that there is

a long-run co-integration relationship among GDP, investment, external and domestic debt in

Pakistan.
 TABLE OF CONTENTS

1. INTRODUCTION 1

2. LITERATURE REVIEW 6

3. DATA AND METHODOLOGY 10

3.1. DESCRIPTION OF VARIABLES 10

3.1.1 GROSS DOMESTIC PRODUCT (GDP) 10

3.1.2 EXTERNAL DEBT 11

3.1.3 DOMESTIC DEBT 11

3.1.4 INVESTMENT 11

3.2. MODEL SOECIFICATION 12

4. EMPIRICAL RESULTS AND DISCUSSION 13

4.1. JOHANSEN CO-INTEGRATION 17

4.2. VECTOR ERROR CORRECTION MODEL (VECM) 20

5. DIAGNOSTIC TESTS 21

6. PARAMETER STABILITY TEST 23

7. CONCLUSION 25

8. POLICY RECOMMENDATION 25

REFFERENCE 26
 LIST OF TABLE

TABLE 1 Descriptive Statistic 13

TABLE 2 Unit root test 14

TABLE 3 VAR lag order selection criteria 15

TABLE 4 Johansen co-integration Trace 17

TABLE 5 Johansen co-integration Maximum Eigenvalue 18

TABLE 6 Normalized co-integration co-efficient 19

TABLE 7 Error Correction Model 20

TABLE 8 Diagnostic tests 21

 LIST OF FIGURES

FIGURE 1 Plot of Cumulative Sum of Recursive Residuals 23

FIGURE 2 Plot of Cumulative Sum of squares of Recursive Residuals 23