The impact of public debt on the economic growth. evidence for Kosovo

Fejzulla Beha, Filipos Ruxho

Article ID: 5944
Vol 8, Issue 6, 2024

VIEWS - 228 (Abstract) 211 (PDF)

Abstract


This study aims to analyze how public debt influences economic growth in Kosovo, using quarterly data from Q1 2008 to Q4 2022 and employing the generalized method of moments (GMM). The research reveals that there is a negative relationship between public debt and economic growth when other factors such as trade openness, total investment, current account balance, and primary balance are considered. Furthermore, the findings confirm an inverted “U-shaped” relationship between public debt and economic growth, indicating that the optimal debt level is between 27.75% and 36.2% of GDP.


Keywords


public debt; economic growth; GMM; Kosovo

Full Text:

PDF


References


Afonso, A., & Jalles, J. T. (2011). Growth and Productivity: The Role of Government Debt. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1893687

Aiyagari, S. R., McGrattan, E. R. (1998). The Optimum Quantity of Debt. Journal of Monetary Economics, 42(3), 447-469. https://doi.org/10.1016/S0304-3932(98)00031-2

Bajrami, R., Tafa, S. (2020). The Impact of Public Debt on Economic Growth in the Republic of Kosovo. Journal of Economics and Sustainable Development. https://doi.org/10.7176/jesd/11-18-06

Balaj, D., Lani, L. (2017). The Impact of Public Expenditure on Economic Growth of Kosovo. OECONOMICA, 13(5).

Baum, A., Checherita-Westphal, C. D., & Rother, P. (2012). Debt and Growth: New Evidence for the Euro Area. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2094998

Bilan, I., Ihnatov, J. (2015). Economic Consequences of Public Debt. The Case of Central and Eastern European Countries. EURINT, 2, 36-51.

Cantor, R. M., & Packer, F. (1996). Determinants and Impact of Sovereign Credit Ratings. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1028774

Cecchetti, S. G., Madhusudan, S. M., Zampolli, F. (2011). The real effects of debt. Bank for International Settlements, Monetary and Economic Department.

Chang, R., Kaltani, L., Norman, V., Loayza. (2009). Openness can be good for growth: The role of policy complementarities. Journal of Development Economics, 90, 33-49. https://doi.org/10.1016/j.jdeveco.2008.06.011

Chatterjee, S., Gibson, J., & Rioja, F. K. (2016). Optimal Public Debt Redux. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2824255

Checherita, C., Rother, P. (2010). The Impact of High and Growing Debt on Economic Growth. ECB Working paper,2010, No. 1237.

Cohen, D., Sachs, J. (1986). Growth and external debt under risk of debt repudiation. European Economic Review, 30(3), 529-560. https://doi.org/10.1016/0014-2921(86)90007-3

Desbonnet, A., Weitzenblum, T. (2012). Why Do Governments End Up with Debt? Short-Run Effects Matter. Economic Inquiry, 50(4), 905-919. https://doi.org/10.1111/j.1465-7295.2011.00410.x

Drakes, L., Thomas, C., Craigwell, R., et al. (2012). Threshold Effects of Sovereign Debt: Evidence From the Caribbean. IMF Working Papers, 12(157), i. https://doi.org/10.5089/9781475504507.001

Dyrda, S., Pedroni, M. (2016). Optimal Fiscal Policy in a Model with Uninsurable Idiosyncratic Shocks, 2016 Meeting Papers 1245, Society for Economic Dynamics.

Eberhardt, M., & Presbitero, A. F. (2015). Public debt and growth: Heterogeneity and non-linearity. Journal of International Economics, 97(1), 45–58. https://doi.org/10.1016/j.jinteco.2015.04.005

Edwards, S. (1997). Openness, Productivity and Growth: What Do We Really Know? National Bureau of Economic Research. https://doi.org/10.3386/w5978

Fatima, G., Ahmed, M., Rehman, W.U. (2012). Consequential effects of budget deficit on economic growth of Pakistan. International Journal of Business and Social Science, 3(7), 203-208.

Kolgjeraj, A., Vokshi, B. (2017). Analysis on the Impact of Public Debt on Economic Growth Case of Republic of Kosovo. Journal of Knowledge Management, Economics and Information Technology.

Krugman, P. (1988). Financing vs. forgiving a debt overhang. Journal of Development Economics, 29(3), 253-268. https://doi.org/10.1016/0304-3878(88)90044-2

Nguyen, T. Q., Clements, B. J., & Bhattacharya, R. (2003). External Debt, Public Investment, and Growth in Low-Income Countries. IMF Working Papers, 03(249), 1. https://doi.org/10.5089/9781451875904.001

Pescatori, A., Sandri, D., & Simon, J. (2014). Debt and Growth: Is There a Magic Threshold? IMF Working Papers, 14(34). https://doi.org/10.5089/9781484306444.001

Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a Time of Debt. American Economic Review, 100(2), 573–578. https://doi.org/10.1257/aer.100.2.573

Röhrs, S., Winter, C. (2017). Reducing Government Debt in the Presence of Inequality. Journal of Economic Dynamics and Control, 82(3), 1-20.

Romer, D. (1993). Openness and Inflation: Theory and Evidence. The Quarterly Journal of Economics, 108(4), 869–903. https://doi.org/10.2307/2118453

Sachs, J. (1983). Theoretical Issues in International Borrowing. National Bureau of Economic Research. https://doi.org/10.3386/w1189

Sachs, J. D., Bulow, J., & Rogoff, K. (1988). Comprehensive Debt Retirement: The Bolivian Example. Brookings Papers on Economic Activity, 1988(2), 705. https://doi.org/10.2307/2534540

Sachs, J. D., Warner, A. M. (1995). Natural Resource Abundance and Economic Growth. NBER Working Paper, https://doi.org/10.3386/w5398

Smyth, D. J., & Hsing, Y. (1995). IN SEARCH OF AN OPTIMAL DEBT RATIO FOR ECONOMIC GROWTH. Contemporary Economic Policy, 13(4), 51–59. Portico. https://doi.org/10.1111/j.1465-7287.1995.tb00731.x

Ugochukwu, S., Chinyere, U. (2013). The impact of capital formation on the growth of Nigerian economy. Research journal of finance and accounting, 4(9).




DOI: https://doi.org/10.24294/jipd.v8i6.5944

Refbacks

  • There are currently no refbacks.


Copyright (c) 2024 Fejzulla Beha, Filipos Ruxho

License URL: https://creativecommons.org/licenses/by/4.0/

This site is licensed under a Creative Commons Attribution 4.0 International License.