Role of institutional quality in debt-growth relationship in Pakistan: An econometric inquiry

Muhammad Ramzan; Yao HongXing; Qamar Abbas; Sumbal Fatima; Rana Yassir Hussain

doi:10.1016/j.heliyon.2023.e18574

Role of institutional quality in debt-growth relationship in Pakistan: An econometric inquiry

Heliyon. 2023 Jul 28;9(8):e18574. doi: 10.1016/j.heliyon.2023.e18574. eCollection 2023 Aug.

Authors

Muhammad Ramzan¹, Yao HongXing¹, Qamar Abbas¹, Sumbal Fatima², Rana Yassir Hussain³

Affiliations

¹ School of Finance and Economics, Jiangsu University, PR, China.
² Institute of Higher Education, Nankai University, Tianjin China.
³ UE Business School, Division of Management and Administrative Science, University of Education Lahore, Pakistan.

Abstract

This study attempts to investigate the mediating role of institutional quality on the relationship between public debt and economic growth in Pakistan spanning 1996-2020. Time series data on all six World Bank World Governance indicators of institutional quality is used in the empirical analysis. Findings of the autoregressive distributed lag (ARDL) bounds testing technique and error correction method (ECM) confirmed the existence of cointegration among variables of interest. The short-run results indicate that public debt has a favorable association with economic growth, while the relationship is found to be detrimental in the long run. Furthermore, the combined effect of public debt and institutional quality indicators revealed the significant positive association with economic growth, suggesting that better institutional quality can contribute to mitigate the negative impact of public debt on economic growth in Pakistan.

Keywords: ARDL; Economic growth; Institutional quality; Public debt.