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Does Public Debt Crowd Out Public Investment in Central and Eastern European economies? A Dynamic Approach Using CS-ARDL

Author

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  • Milena Konatar
  • Jovan Đurašković
  • Nemanja Popović
  • Milivoje Radović

Abstract

This study estimates the impact of public debt on public investment in Central and Eastern European (CEE) economies. We implement Cross-sectionally Augmented Autoregressive Distributed Lag (CS-ARDL) model, which effectively handles cross-sectional dependence and slope heterogeneity, while dealing with short- and long-run coefficients simultaneously. The results indicate the existence of both short- and long-term crowding out effects of public debt on public investment in the CEE region. These findings have significant fiscal policy repercussions, particularly in context marked by constrained financial resources and substantial debt loads, as has been the case in a number of CEE economies.

Suggested Citation

  • Milena Konatar & Jovan Đurašković & Nemanja Popović & Milivoje Radović, 2025. "Does Public Debt Crowd Out Public Investment in Central and Eastern European economies? A Dynamic Approach Using CS-ARDL," Prague Economic Papers, Prague University of Economics and Business, vol. 2025(1), pages 26-44.
    • Handle: RePEc:prg:jnlpep:v:2025:y:2025:i:1:id:887:p:26-44
    DOI: 10.18267/j.pep.887
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    References listed on IDEAS

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    1. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
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    Keywords

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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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