Abstract:

Less-developed and developing countries are faced with many problems such as lack of knowledge and technology, lack of domestic savings, low export revenues, disbalans of payments. For these reasons, these countries often apply for foreign debt. When the foreign debt is received, the national income increases, and when the national income is paid, the national income is reduced. In this study, for 22 less developed and developing countries, the impact of foreign debt on economic growth was tested by panel data analysis. Analysis has found a one-way causal relationship from economic growth to external debt. FMOLS and DOLS tests also support Granger causality results. According to the panel FMOLS test, 1% increase in economic growth increases external debt by 0.849%. According to the DOLS test, 1% increase in economic growth increases external debt by 0.802%.