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Foreign Aid, External Debt and Economic Growth Nexus in Low-Income Countries: The Role of Institutional Quality

Unbreen Qayyum and Adnan Haider
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Unbreen Qayyum: Pakistan Institute of Development Economics, Islamabad
Adnan Haider: Institute of Business Administration, Karachi, Pakistan

The Pakistan Development Review, 2012, vol. 51, issue 4, 97-116

Abstract: Institutional quality plays an important role in promoting economic development of a nation. Foreign capital can work efficiently and its productivity will be high if the quality of institution is good. This study attempts to investigate empirically the impact of external debt and foreign aid on economic growth by taking into consideration the quality of institution in terms of effective governance. Annual data for the period 1984 to 2010 has been taken from a panel of sixty developing countries. Empirical results indicate that the good governance and foreign aid affect the economic growth positively while that of external debt has a negative impact. These results are robust for various alternative specifications.

Keywords: Foreign Aid; External Debt; Economic Growth; Governance (search for similar items in EconPapers)
JEL-codes: E02 E20 F34 F35 F43 (search for similar items in EconPapers)
Date: 2012
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