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

Anita Ceh Casni (), Ana Andabaka Badurina and Martina Basarac Sertic
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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

Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 2014, vol. 32, issue 1, 35-51

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.

Keywords: debt; economic growth; pooled mean group estimator; European countries (search for similar items in EconPapers)
JEL-codes: C33 F43 H63 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)

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