Impact of External Debt on Economic Growth in Western Balkan Countries

Altin  Hoti; Aranit  Shkurti; Scheherazade  Rehman

doi:10.36941/ajis-2022-0045

Authors

Altin Hoti Associate professor, College of Engineering and Technology, American University of the Middle East, Kuwait
Aranit Shkurti Assistant Professor, Metropolitan Tirana University, Pjeter Budi St., Tirana 1000, Albania
Scheherazade Rehman Professor, George Washington University, 2121 I St NW, Washington, DC 20052, United States

DOI:

https://doi.org/10.36941/ajis-2022-0045

Keywords:

Public debt, economic growth, fiscal policy, dynamic common correlated effects model

Abstract

This paper investigates the average impact of government debt on long-term GDP growth in four Western Balkan countries of Albania, Serbia, Macedonia, and Bosnia & Herzegovina over a 23-year period from 1997-2019. It examines the use of financing through debt on short- and long-term economic growth for these economies using a dynamic common correlated effects model with heterogeneous coefficients. The model's methodology estimation mimics Chudik and Pesaran and the pooled mean group estimator is used. The conclusion of this study, with respect to the average impact of government debt on long-term GDP growth in the four Western Balkan countries, is consistent with the literature in that in the long-term external debt does not contribute to long-term growth and, in fact, tends to have a negative impact. The COIVD-19 pandemic has exacerbated the long-term growth outlook for the four Western Balkan countries.

Received: 21 December 2021 / Accepted: 22 February 2022 / Published: 5 March 2022