Does Foreign Financial Resources Promote Economic Growth in SAARC Countries?

The study was conducted to investigate the impact of foreign debt financing and foreign direct investment on economic growth for South Asian Association of Regional Cooperation. The study was conducted using two models. The findings of dynamic ordinary least square (DOLS) for model 1 suggests that total foreign inflows has negative and significant effect on economic growth. The findings of fully modified ordinary least square (FMOLS) of model 2 suggests that external debt financing and foreign direct investment has positive and significant effect on economic growth. The reason for negative effect of total foreign inflow could be caused by inefficient use of resources. Whereas in the second model the positive effect of external debt financing and foreign direct investment suggests that external debt is used for debt servicing and balance of payment corrections. Foreign direct investment effect is low in the long run because of higher budget deficit and low investment in infrastructure.