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The Impact of Public Debt on the Economic Growth in South Eastern Europe: An Empirical Panel Investigation

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  • Burim Gashi

Abstract

The goal of this paper is to examine the impact of public debt in six countries from South-Eastern Europe over the period 2008 to 2017, by applying three different panel methods: the fixed effects model, the GMM method and the system-GMM method. More specifically, we investigate if there is evidence of a non-linear (quadratic) relationship in this group of countries. The results of our study confirm that increasing public debt has a statistically significant negative influence on the GDP growth. Also, the results confirm the existence of a „U inverted” relationship, with a maximum debt threshold of about 58% of GDP. After this threshold, public debt is expected to negatively affect the economic growth rate, due to fear of public debt unsustainability higher interest rates, and severe budgetary consolidation measures.

Suggested Citation

  • 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.
    • Handle: RePEc:bas:econst:y:2020:i:2:p:3-18
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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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