Impact of Public Investment Through Public Debt on Economic Growth: Empirical Analysis in European Countries in Transition

Abstract

The main aim of this study is to investigate the link between public investment and public debt in transition countries. This analysis includes European countries in transition, and the source of data will be the World Bank, the International Monetary Fund, and Eurostat. This study has particular scientific importance; firstly, this study will reflect the relationship between public investment and public debt. Secondly, this study will give empirical data that shows the impact of public debt through public investment on economic growth in European countries in transition. To conduct this research, we have used various econometric models, such as OLS, Fixed and Random Effects, Hausman-Taylor, and GMM. The results obtained through this study are in full accordance with the theoretical hypotheses presented at the beginning of this research which emphasize that public debt is likely to affect economic growth through public investment positively. Empirical results show that public debt positively affects economic growth through public investment in transition countries in Europe, and it can be argued that these countries can increase the level of debt to finance public capital investment which then affects economic growth. The findings of this study are beneficial for the governments of European countries in transition, as it provides them with helpful information on the link between investment and public debt.