Impact of Public Spending on North Macedonia’s GDP: A Functional Classification Analysis

Public expenditure’s role in stimulating economic growth is a focal point in economic discourse. This study examines the relationship between public expenditure and economic growth in North Macedonia, using historical budget and GDP data from 1995 onward. In North Macedonia, the composition of expenditures significantly impacts growth, with stronger long-term effects. By employing a regression model and analyzing expenditures across various functional classifications, the research identifies significant correlations between specific types of public spending and GDP growth. Data were sourced from the national budgets published in Official Gazettes and budget proposals from the Ministry of Finance, covering the functional classification. The model was developed to analyze how various expenditure components, including defense spending, education, healthcare, defense, and public order and security, influence GDP levels. The findings reveal that increased spending on defense, health, and education positively impacts GDP while spending on public order and security shows a negative correlation. However, these results should be interpreted cautiously due to North Macedonia’s volatile political climate and high corruption levels. Overall, increased consumption from specific expenditures positively affects growth but not in the long term.