Original scientific paper
Public debt and growth: evidence from Central, Eastern and Southeastern European countries
Anita Čeh Časni
orcid.org/0000-0002-2742-8619
; Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia
Ana Andabaka Badurina
orcid.org/0000-0003-2596-0561
; Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia
Martina Basarac Sertić
orcid.org/0000-0003-4182-8405
; 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.
Keywords
debt; economic growth; pooled mean group estimator; European countries
Hrčak ID:
123118
URI
Publication date:
17.6.2014.
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