International Journal of Engineering, Business and Management (IJEBM) ISSN: 2456-7817 [Vol-8, Issue-3, Jul-Sep, 2024] Issue DOI: https://dx.doi.org/10.22161/ijebm.8.3 Article Issue DOI: https://dx.doi.org/10.22161/ijebm.8.3.1 Int. j. eng. bus. manag. www.aipublications.com Page | 1 External Debt and Economic Growth: Empirical Evidence from Developing Countries Nechirwan Burhan Ismael, Shamal Hasan Obaid Mahmod, Hariwan Subhi Khorsheed Department of Accounting, Cihan University – Duhok, Duhok, Kurdistan Region, Iraq. Received: 15 Jul 2024; Received in revised form: 07 Aug 2024; Accepted: 12 Aug 2024; Available online: 17 Aug 2024 ©2024 The Author(s). Published by AI Publications. This is an open access article under the CC BY license (https://creativecommons.org/licenses/by/4.0/) Abstract— This study investigates the complex relationship between external debt and economic growth in developing countries. Utilizing a quantitative research methodology, data was collected from three selected developing countries through an online questionnaire distributed to key stakeholders, totaling 189 responses. Various statistical techniques, including t-tests, Chi-square tests, Variance Inflation Factor (VIF) assessment, Partial Least Squares Regression (PLS), and Principal Component Analysis (PCA), were employed to analyze the data. The findings reveal that moderate levels of external debt can positively impact economic growth, while excessive debt levels are detrimental. Effective debt management practices and strong institutional frameworks significantly enhance the positive effects of external debt. The study also highlights the adverse impact of external economic shocks on the debt-growth relationship. Key predictors of economic growth identified include external debt levels, debt management practices, and institutional quality. These factors underscore the importance of maintaining sustainable debt levels, implementing robust debt management strategies, and improving governance to optimize the benefits of external borrowing. The study concludes with recommendations for policymakers to maintain sustainable debt levels, negotiate favorable borrowing terms, and develop risk management strategies to mitigate external shocks. Limitations of the study include the reliance on data from three countries and the cross-sectional design. Future research should consider longitudinal studies, broader samples, sector-specific analyses, qualitative approaches, and the impact of global economic changes. Overall, this study provides valuable insights into the dynamics of external debt and economic growth in developing countries, offering guidance for policy formulation and economic planning to promote sustainable development. Keywords— External Debt, Economic Growth, Debt Management, Institutional Quality I. INTRODUCTION The relationship between external debt and economic growth has been a topic of considerable debate and research, especially in the context of developing countries. External debt, defined as the portion of a country's debt that is borrowed from foreign lenders, including commercial banks, governments, or international financial institutions, plays a crucial role in the economic development of these nations. While external debt can provide the necessary capital for investment in infrastructure, education, and other essential sectors, it also poses significant risks if not managed prudently (Law et al., 2021). External borrowing is a common source of financing for developing countries, to fill in the savings and investment gap. By boosting productive capacities and technological innovation, such capital flows can also theoretically help to strengthen growth. On the other hand, debt overhang could arise due to reliance on external debts as well; where burden of servicing these loans becomes so considerable that it retards economic growth. This rather paradoxical situation underlines the critical significance of knowing how external debt dynamics has shapen and continue to shape economic performance (Tajammal and Butt, 2024). This study is therefore Responding to the Empirical Divergence on Foreign Debt Impact on Economic Growth in Developing Countries. In fact, some researchers even suggest that external debt at moderate levels can be an enabler of growth if accompanied by good macroeconomic policies and effective management arrangements. Others argue, on the other hand, that outsized external debt can fuel economic