The Impact of Public Debt on Economic Growth in the Republic of Kosovo

Abstract

The main purpose of this paper is to examine the impact of public debt in relation to economic growth. The current public debt and economic growth surveys show that the threshold where public debt yields positive results in GDP growth for transition countries is 30-50% of GDP and from this level or above, there are negative effects in economic growth. Based on this data, this paper analyzes the current public debt and its effects in the future in the Republic of Kosovo. The methodology used in this paper is through the empirical method. The data were analyzed through the R program and they showed the impact of public debt in economic growth in the Republic of Kosovo. By using the VAR (vector autoregression) model, the impact of public debt was measured, as well as the government expenditure, gross fixed capital formation, and gross saving on economic growth in the Republic of Kosovo for the period of 2008 to 2018. The results suggest that Republic of Kosovo achieved higher growth rates when the public debt-to-GDP ratio was around 10–30 percent

Keywords: Public Debt, Economic Growth, VAR model

DOI: 10.7176/JESD/11-18-06

Publication date:September 30^th 2020