Analyzing the Threshold Impact of Public Debt on Economic Growth an Investigation of the New Member States within the European Union

Abstract

This paper aims to analyze the impact of public debt on economic growth in
eleven EU new member states (NMS) from Central and South-Eastern Europe
for the period 2000–2019. More specifically, we investigate if there is evidence
of a non-linear (quadratic) relationship in this group of countries. Having in
mind different economic and financial development, historical connections, and
geographical proximity, we split them into three more homogenous groups:
Balkan countries (BAL-4), Baltic countries (B-3), and Visegrad countries
(VIS-4). The results of our study in all models indicate a statistically significant
non-linear impact of public debt ratios on annual GDP per capita growth rates.
The results across all models show a significant non-linear impact of public debt
ratios on annual GDP per capita growth rates. Further, the calculated debt-toGDP turning point, where the positive effect of accumulated public debt inverts
into a negative effect, is roughly between 42.7%–58% of GDP, dependent on
which sub-group we have analyzed. In general, the research may contribute to
a better understanding of the problem of high public debt and its effect on
economic activity in the new EU.