DEBTS (PUBLIC AND EXTERNAL) AND GROWTH – LINK OR NO LINK?

Abstract

Throughout history the world has been faced by high debts, with the recent global financial crisis intensifying the issue of increasing indebtedness (with respect to both public and external debts), especially in the light of sovereign debt crisis that some countries have been subject to recently. This paper explores the debt levels in Central, East and Southeast Europe and investigates their relation with growth. We use annual data on debts and growth from the WIIW database (The Vienna Institute for International Economic Studies) and World Development Indicators (World Bank) on 18 countries. By employing econometric analysis in the form of dynamic panel data analysis our investigation contributes to the literature by covering the recently very hot issue of the dangers of high indebtedness in the region of Central, East and Southeast Europe. Our findings send a strong warning about the need to keep the debts under control