The dynamic changes are happening in the world economies and the traditional systems are transforming according to the needs and betterment of societies. Every economy needs to grow and to compete with the challenging world and for this purpose huge financial resources are needed. The misconception about foreign financial resources says that they always harm economies but on the real grounds, such resources are needed to boost economy and compete with the rest of the world. Foreign financial resources such as external debt is itself not a bad thing but how it is used is important. If it is used productively and effectively then it will boost economic growth. For this purpose the paradigm of thoughts are shifted towards institutions/governance. If the institutions are working properly and efficiently use the external and internal resources the economy will grow. The present study investigated the role of institutional quality between debt-growth nexus for less developed and developing economies. The study used cross sectional data of 70 countries, for time period 2017 and use structural equation modelling (SEM). The results of the study shows no proper role of institutional quality on debt-growth nexus in less developed countries while the strong impact of institutional quality on debt-growth nexus in developing countries. The present study suggest that the efficient use of foreign financial resources can be made through better institutions. Supervisor:- Dr. Hafsa Hina