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Title Analysis of Inter-Relationship between Debt to GDP Ratio and Human Development Index – A Comparative Analysis of South Asian Countries

Author(s) Arif Karim

Abstract This study assesses the impact of increase in debt of South Asian countries on the Human Development Index (HDI) of the South Asian countries. I built stance in my study that when the governments fail to perform well on the part of fiscal policy, they fall in budget deficit crisis. The authorities then seek help from different financial institutions, in the form of debt. But once the country gets trap in the debt circle, it poses heavy responsibility on them for effective utilization of the borrowed amount. However, the debt is to be paid by the borrowing country sooner or later along with the interest payment. The country already facing fiscal crisis often finds it difficult in repayment process. Hence, by using econometric analysis I tested the theory that how economic crisis lead to social crisis for the country fallen in debt trap. For this purpose, I took Human Development Index of South Asian countries over a period of 1990-2018 and estimated the impact of increasing debt to GDP ratio on HDI. In addition to this, I employed Fixed Effects Model (FEM), regression analysis and Extreme Bound Analysis (EBA) to empirically test my hypothesis, that there exists the effect of the debt to the GDP ratio on Human Development Index. Fixed Effects Model regression results indicate negative and statistically significant effect of the debt to GDP ratio on HDI. In a nutshell, “ceteris paribus” the estimation of beta coefficient indicates that one (1)-unit increase in the debt to the GDP ratio causes Human Development Index, to fall by 15-units, and vice versa. In simple words, the more the debt to GDP ratio, the more the negative impact on HDI. However, debt is not always a curse; countries often borrow from different sources for smooth functioning. But the debt must be utilized properly and in effective manner. Moreover, there must be an optimal level of obtaining debt after which debt becomes curse. I employed EBA to find the threshold for debt. Thus, my results indicate that if debt of South Asian countries goes beyond 20%, it will start negative impact on their economies. The results of EBA with regard to other dimensions of HDI indicate that the debt to GDP ratio when exceeds from 50%, it starts causing negative effect on life expectancy. Likewise, when this limit exceeds to 30 %, it starts affecting the education and when it exceeds to the ratio of 20% it starts effecting income per capita. Thus, on the basis of these findings the study connotes different policy suggestions implacable to all South Asian countries.

Type Thesis/Dissertation MS

Faculty Management Sciences

Department Governance and Public Policy

Language English

Publication Date 2021-02-17

Subject Governance and Public Policy

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