The Impact of Public Debt Threshold on Economic Growth Before and After the COVID-19 Pandemic: An Empirical Analysis of Central and Eastern European Developing Countries

Research purpose. This research paper delves into the threshold effects of public debt on economic growth in Central and Eastern European countries, both before and after the COVID-19 pandemic. Its primary aim is to pinpoint critical thresholds of the public debt-to-GDP ratio that either stimulate or hinder economic growth in these regions. Design / Methodology / Approach. Data spanning from 2010 to 2022 are analysed using a variety of advanced econometric techniques including OLS, Fixed-Effects models, Random-Effects models, Hausman Taylor Estimation, GMM Dynamic Panel Data, and the Threshold model. Findings. The study reveals significant findings: before the COVID-19 pandemic, the optimal debt-to-GDP ratio threshold stood at 42.5%. However, considering the combined impact of the COVID-19 pandemic and the Ukraine crisis, this threshold adjusts to 33.69%. This indicates that Central and Eastern European countries can safely increase their debt levels up to these points without detriment to economic growth. Beyond these thresholds, however, further increases in public debt yield negative economic effects. These findings offer invaluable insights for policymakers in Central and Eastern European countries, equipping them with evidence-based guidance on managing public debt levels effectively. Originality / Value / Practical implications. This study offers original insights into public debt thresholds' effects on economic growth in Central and Eastern European developing countries before and after the COVID-19 pandemic. It highlights how debt thresholds shifted due to the pandemic and geopolitical events, providing practical guidance for policymakers. These findings support evidence-based debt management strategies to ensure economic stability and growth in the CEE region.