Politická ekonomie 2022, 70(5):574-596 | DOI: 10.18267/j.polek.1365

Does Public Debt Affect Economic Growth? Panel Evidence from Central and Eastern Europe

Milena Konatar ORCID...a, Jovan Đuraškovićb, Julija Cerović Smolović ORCID...b, Milivoje Radovićb
a Corresponding author: Milena Konatar, Department of Macroeconomics, Faculty of Economics, University of Montenegro, Podgorica, Montenegro
b Faculty of Economics, University of Montenegro, Podgorica, Montenegro

The paper employs a form of the panel ARDL-based error correction model (ECM) to explore the short-run and long-run relationship between public debt (and certain macroeconomic variables) and economic growth in Central and Eastern European (CEE) countries. It covers the period 2006Q1−2018Q4. The results indicate both short-term and long-term causality (except for financial development), though the marginal effects are variable-specific. There is a negative effect of public debt, interest rate and exchange rate on growth, whereas the saving rate, trade openness, financial development, fixed capital formation and population growth contribute to economic development. Thus, a responsible and saving-oriented fiscal policy, coupled with higher private sector investment, an export-oriented private sector and undervalued real exchange rate, and population growth would contribute to economic development in CEE countries.

Keywords: Public debt, economic growth, CEE countries, ARDL-EC Model
JEL classification: C33, E62, H63, O52

Received: August 10, 2020; Revised: April 6, 2022; Accepted: July 1, 2022; Prepublished online: November 5, 2022; Published: December 5, 2022  Show citation

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Konatar, M., Đurašković, J., Cerović Smolović, J., & Radović, M. (2022). Does Public Debt Affect Economic Growth? Panel Evidence from Central and Eastern Europe. Politická ekonomie, 70(5), 574-596. doi: 10.18267/j.polek.1365
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