Exploring the Impact of Foreign Loans, and Foreign Aid on Economic Performance: Evidence from Nepal

Abstract

This study provides a comprehensive analysis of the impact of foreign loans, foreign aid, and globalization on economic performance in Nepal over the period from 1990 to 2022. Using the ARDL model and diagnostic tests, the study examines various aspects including the influence of foreign aid, foreign loans, economic globalization, social globalization, and political globalization on economic performance. The results reveal significant positive effects of foreign aid and foreign loans on economic performance, emphasizing the importance of effective resource utilization for investment and savings. Policy recommendations include optimizing aid allocation and responsible borrowing practices to maximize their contribution to economic growth. Furthermore, the study underscores the favorable effect of economic, political, and social globalization on economic performance, highlighting the need for policies fostering international trade, cooperation, and investment. Additionally, prioritizing investments in capital and labor, guided by evidence-based policies, is crucial for driving economic growth and productivity. Continuous monitoring and adjustment of economic policies are essential for maintaining long-term stability and sustaining economic progress.