REVISITING THE PUBLIC DEBT-GROWTH PUZZLE: EVIDENCE FROM BALKAN COUNTRIES

Agim Kukeli
Black Hills State University, South Dakota, USA
ABSTRACT
This study investigates the effect of debt on the economic growth using pooled-cross-sectional
data of nine Balkan countries over the period 2001-2011. Balkan countries have seen an increase in the
debt-to-the Gross Domestic Product (GDP) ratio, although this ratio is still at moderate level, and almost
in line with Maastricht Treaty requirements. This study finds that there is a positive effect of debt on
economic growth, and the coefficient measuring this effect is statistically significant and robust when
controlled for both economic and policy variables. The estimates obtained in nine different models show
that on average an increase in debt-to-GDP ratio by one percentage point will increase economic growth
by 0.5 percentage points.