Developing countries usually have scarce resources and low tax revenues. In order to fulfill the gap between the expenditures and revenues or to overcome the budget deficit, they have to rely on the foreign capital. However the efficiency of foreign capital depends on governance and the institutional quality. Good governance enables a country to achieve its development goals and become prosperous, by establishing a conductive environment for the high and sustainable economic growth. Good governance establishes an impartial, predictable and consistently enforced rules in the form of institutions and is thus crucial for the sustained growth (Keefer and Knack 1997). Where as many studies have been conducted in recent years to examine the relationship between economic growth and external debt, economic development and foreign aid, impact of foreign aid on governance and institutional quality, the role of institution in the economic performance of country, little attention has been paid to explore the inter-linkages among foreign aid, external debt, governance and economic growth in a unified framework. Supervisor:- Dr. Musleh ud Din