Interlinkages between Openness and Foreign Debt in Pakistan Interlinkages between Openness and Foreign Debt in Pakistan = Pakistan’da D a A kl k ile D Bor Aras nda Kar l kl Ba lant

The paper empirically studies the impact of trade openness on foreign debt in Pakistan using quarterly data for the period 1972 to 2010. Generalized method of Moments (GMM) estimation technique is applied to overcome the potential endogeneity problem in the model. The study reveals a significant positive effect of trade openness on foreign debt. The results are robust to different model specifications. The results also highlight the role of other variables in determining external debt. Terms of trade, fiscal deficit and inflation significantly positively affect foreign debt; while foreign Exchange reserves and foreign direct investment have significant negative impacts on foreign trade.