Dynamics of Foreign Debts, Foreign Direct Investment, Trade Openness, Debt Servicing, and Inflation; Impact on Pakistan's Economic Growth.

Abstract

Macroeconomic stability is the most important indicator for assessing a nation's economic health. The country's GDP growth rate measures economic growth and development. Foreign direct investment (FDI), debt servicing, external debts, inflation, and trade openness are essential macroeconomic indicators; this study aims to investigate the factors that impact economic growth. The study examines Pakistan's GDP from 1990 through 2023. The quantitative approach with secondary time series data was used to inquire about the relationship of GDP from 1990 to 2023 with five macroeconomic variables. The regression analysis using the ARDL model determined the long-term and short-term relationship. The study concluded that inflation, trade openness, and foreign debt statistically affect GDP growth over a longer time horizon.

On the other hand, it does not seem that factors like debt service and foreign direct investment significantly influence long-term GDP growth. The direct correlation between GDP growth and independent variables is examined through the Error Correction Model (ECM). It implies that trade volume and foreign debt have statistically significant short-term effects on GDP growth. However, inflation, debt service costs, and foreign direct investment have no appreciable short-term effects.