External debt and economic growth: moderating role of governance in South Asia Region

The current analysis explores the effect of external debt on economic growth and how better governance interacts with this relationship. For empirical assessment, we sample 20 years of data (2000–2019) of South Asian economies and consider the FMOLS and DOLS models to model the regression among the variables. The statistical analysis reveals a significant negative effect of both long- and short-term external debts, while governance has a significant positive effect on economic growth. In addition, the positive moderating role of governance was also observed in the nexus of external debt and economic growth. Enhancing governance can make external borrowing beneficial for economic progress. The empirical analysis posits multiple policies regarding the reduction of external borrowings, enhancement of the quality of governance, and effective utilization of external debt for development projects through better governance systems. By exploring the empirical relationship between external debt, governance, and economic growth, this study provides original evidence on how to enhance the utilization of external debt to ensure economic growth.