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Public debt and growth: evidence from Central, Eastern and Southeastern European countries

Author

Listed:
  • Anita Ceh Casni

    (University of Zagreb, Faculty of Economics and Business, Zagreb, Croatia)

  • Ana Andabaka Badurina

    (University of Zagreb, Faculty of Economics and Business, Zagreb, Croatia)

  • Martina Basarac Sertic

    (Croatian Academy of Sciences and Arts, Zagreb, Croatia)

Abstract

The aim of this paper is to quantify the long run and short run relationship between debt and economic activity in Central, Eastern and Southeastern European countries. In order to investigate the impact of public debt on economic growth, the paper uses pooled mean group estimator (PMG) for the period between 2000 and 2011. A battery of panel unit root as well as panel cointegration tests is used prior to performing the dynamic panel analysis based on PMG estimator. According to the empirical results, in the long-run debt significantly influences the GDP growth having a negative sign as expected and pointing out that government gross debt lowers the GDP growth. In the short run, debt has statistically significant negative influence on the GDP growth as well, controlling for other determinants of growth (trade openness, total investment and industry value added). Designing policy frameworks that encourage export, promote industrial development and create better environment for long-term investment should foster sustainable growth. Therefore, we find that a credible fiscal consolidation strategy is needed combined with policies to promote lasting growth in order to reach debt-stabilizing levels.

Suggested Citation

  • Anita Ceh Casni & Ana Andabaka Badurina & Martina Basarac Sertic, 2014. "Public debt and growth: evidence from Central, Eastern and Southeastern European countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 32(1), pages 35-51.
    • Handle: RePEc:rfe:zbefri:v:32:y:2014:i:1:p:35-51
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    References listed on IDEAS

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    Cited by:

    1. Juergen Amann & Paul Middleditch, 2017. "Growth in a time of austerity: evidence from the UK," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(4), pages 349-375, September.
    2. Eunji Kim & Yoonhee Ha & Sangheon Kim, 2017. "Public Debt, Corruption and Sustainable Economic Growth," Sustainability, MDPI, vol. 9(3), pages 1-30, March.
    3. Mihaela Onofrei & Ionel Bostan & Bogdan Narcis Firtescu & Angela Roman & Valentina Diana Rusu, 2022. "Public Debt and Economic Growth in EU Countries," Economies, MDPI, vol. 10(10), pages 1-23, October.
    4. Chimere Okechukwu Iheonu & Godfrey Ikechukwu Ihedimma & Matilda Chinonyerem Omenihu, 0. "A Pooled Mean Group Estimation of Capital Inflow and Growth in sub Saharan Africa," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 20(65), pages 105-121, September.
    5. Irina BILAN, 2015. "Economic Consequences Of Public Debt. The Case Of Central And Eastern European Countries," EURINT, Centre for European Studies, Alexandru Ioan Cuza University, vol. 2, pages 36-51.
    6. Burim Gashi, 2020. "The Impact of Public Debt on the Economic Growth in South Eastern Europe: An Empirical Panel Investigation," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 3-18.

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    More about this item

    Keywords

    debt; economic growth; pooled mean group estimator; European countries;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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