(FDI and ODA), both of which are considered to be crucial in the long term economic growth of least developed countries. Finally, we seek to stimulate the debate on the effectiveness of different forms of external debt on long term economic growth by using different specification of external debt stocks in addition to PPG, namely total and concessional debts. Our empirical approach builds on the works of Kumar and Woo (2010) and Clements et.al (2003).We follow closely the findings of Sala-i-Martin, Doppelhofer and Miller (2004) in selecting the core sets of growth determinants that have been established to have higher posterior inclusion probability; however, the estimated model variables are constrained by the available data. We control for the effects of foreign capitals, domestic capital, human capital, population growth and fiscal volatility. Issues of endogeneity, simultaneity and reverse causality, measurement bias and nonlinearity are addressed. We employ system Generalized Methods of Moments (SGMM) as the primary estimation technique, however, we also report results based on fixed effects method for robust checks. Results from this study are crucial in shedding some light on whether the HIPCs and MDR and other debt forgiveness initiatives from bilateral donors have had any impact on the recently observed positive growth rates in LDCs. The rest of the paper is organized as follows; section II discusses the relevant literature, section III provides a descriptive analysis of trends in external debt, investment and macroeconomic performance, section IV, methodology and results and section V concludes. Bond
net exports, we are able to observe the effects of the global demand on economic growth. Second, as indicated in the preceding section, countries in our sample are net importers, with their export sector characterized by primary commodities and agriculture based light manufacturing, which are income inelastic and price elastic. It is expected for FDI to have a positive effect while net exports, negative effects. Another global factor included in our model is the share of net official development assistance (ODA) in gross national income. The biggest constraint facing LDCs to achieving sustainable economic growth is mobilizing domestic financial resources for development. As a result, majority of them are faced with a big financing gap. Consequently, ODA remains the largest source of development funds in most LDCs and has been advocated by United Nations General Assembly as a necessary financial source to help these countries graduate from the LDC status. It has also been indicated in literature that debt overhang effects are exacerbated in the presences of low ODA flow (Pattillo, Poirson and Ricci, 2004). The sign for ODA is expected to be positive. Sala-i-Martin et al (2004) identified human capital measure, population growth and government consumption expenditure as some of the variables that have high marginal contribution to explanatory power of the growth regression. These variables make up the domestic factors in addition to physical capital. According to UNFPA (2011), least developed countries have the highest population growth rate in the world, which is three times that of other developing countries. Population growth has also been used elsewhere as a proxy for the rate of growth of labor input in the production process. We expect population growth rate variable to have negative effects on economic growth. Secondary school enrolment and the share of gross fixed capital formation in GDP are used as proxies