Macroeconomic Determinants of Public Debt in Bangladesh: An ARDL Approach

Macroeconomic Determinants of Public Debt in Bangladesh

Abstract

The majority of developing nations worldwide have relied on borrowing to fund their operations and development. Studying the primary macroeconomic drivers of public debt is essential to escaping the debt burden. Using the ARDL model, this study investigates the macroeconomic determinants of Bangladesh’s public debt from 1975 to 2022. The macroeconomic factors that influence public debt are co-integrated, according to the estimated results of the ARDL bound test. In short run government spending, import and FDI significantly reduces public debt where GDP growth insignificantly reduces public debt. In the long run import and inflation rate significantly reduces public debt while export significantly increases public debt. Also, GDP growth insignificantly increases public debt. Study recommends that Bangladesh should always pursue responsible monetary and fiscal policies because they foster an atmosphere that is conducive to economic expansion. Establishing such a setting is a crucial precondition to using public debt effectively.