Consumption vs. Investments for stimulating economic growth and employment in the CEE Countries – a panel analysis

Magdalena Radulescu, Luminita Serbanescu and Crenguta Ileana Sinisi

Economic Research-Ekonomska Istraživanja, 2019, vol. 32, issue 1, 2329-2353

Abstract: The aim of this paper is to find out if the high economic growth rates achieved by the CEE countries are based either on consumption or on investments, considering many exogenous factors that impact on the economic growth and how these factors can contribute to the employment process in the CEE economies to stress if these trends of economic growth and employment are sustainable in the long run. We performed two Panel Least Squares and Pool Least Squares estimations to determine the impact of the exogenous variables on the economic growth (as GDP per capita growth) and on the unemployment rate in the short and long run, depending on the lags of the exogenous variables used in the analysis. We used yearly data series during 2004–2017 for eight selected CEE countries. Our results show that private consumption is positively related with economic growth in the short run, but it doesn’t support the job creation process, in the same way as the savings rate can’t determine positive effects on the employment. Public spending is strongly and negatively correlated with economic growth and positively correlated with the unemployment rate in the CEE region, while the net export is weakly impacting on the economic growth in the CEE region and doesn’t support the employment process in this area. The impact of the domestic investments on the economic growth is weaker in the CEE area than the impact of both private and public spending, but they are positively correlated with the economic growth and negatively correlated with the unemployment rate, while the correlation of the foreign direct investments (FDIs) with both economic growth and unemployment is very weak, as it is the case of net exports. We conclude that the economic growth in the CEE area is mainly based on the private consumption in the short run but the private consumption doesn’t support the job creation process either in the long run or in the short run. The qualitative factors included in the analysis by using global competitiveness index (corruption control, bureaucracy, infrastructure quality, governance effectiveness, political stability, rule of law factors, property rights, markets efficiency, etc.) and corruption perception index are strongly and positively correlated with the economic growth and negatively correlated with the unemployment rate.

Date: 2019
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DOI: 10.1080/1331677X.2019.1642789

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