External Public Debt: Is it a Boon or Bane for Bangladesh?
This work tries to analyze the effect of external public debt on the economy of Bangladesh with the help of debt
overhang effect and crowding out effect. The data set used for this purpose ranging from 1982-2016. The debt overhang
theory was firstly used by Krugman and later supported by other authors. For the case of crowding out effect, there are two
popular views, the classical view and the Keynesian view. The finding of this works shows that the existence of debt
overhang effect and the crowding out effect for the case of external public debt for the case of Bangladesh. For the case of
other explanatory variables in these two model most of the variables are showing expected results. This is a time series work.
Firstly the unit root property of the variables are checked followed by determining appropriate lag and Johansen
cointegration test. Based on cointegration test results VECM has been used.
Keywords- Unitroot, Cointegration, VECM, OLS, Debt Overhang, Crowding out, Bangladesh.