THE NEXUS BETWEEN PUBLIC INVESTMENT AND ECONOMIC GROWTH: INSIGHTS FROM SOUTH-EAST EUROPE
THE NEXUS BETWEEN PUBLIC INVESTMENT AND ECONOMIC GROWTH: INSIGHTS FROM SOUTH-EAST EUROPE

Summary/Abstract: This study aims to examine the effects of investment spending financed by central and local government budgets on economic growth in a sample of nine countries located in South-East Europe (SEE), namely Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Montenegro, Romania, Serbia, and North Macedonia. The methods used are descriptive and comparative analysis of the main indicators of government spending and investment activity, as well as correlation and regression analysis of panel data. The study covers the period 2008 – 2023. The results show cyclical dynamics of government spending and large heterogeneity in the size of the public sector as a percentage of gross domestic product (GDP). Correlation and regression analysis show a strong negative impact of total government spending and government consumption on the growth rate, while the effects of public investment at both the central and local levels of government are not statistically significant. These findings suggest low efficiency of public spending. The main conclusion is that public investment is not an effective tool for fiscal impact on the economic development in the selected SEE countries. The practical and policy implications of our research indicate that policymakers can support economic growth by reducing the size of the public sector, or at least by trying to limit its escalation and seeking to increase its efficiency.

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