Open AccessCausal Nexus between Government Debt, Exports and Economic Growth for Three Eurozone Countries: A Panel Data Analysis
Author(s) -
Nikolaos Dritsakis,
Pavlos Stamatiou
Publication year - 2016
Publication title -
journal of economics and public finance
Language(s) - English
Resource type - Journals
eISSN - 2377-1046
pISSN - 2377-1038
DOI - 10.22158/jepf.v3n1p47
Subject(s) - nexus (standard) , economics , panel data , government debt , debt , error correction model , ordinary least squares , government (linguistics) , financial crisis , granger causality , economic and monetary union , order (exchange) , monetary economics , debt crisis , causality (physics) , european debt crisis , panel analysis , international economics , macroeconomics , european union , cointegration , finance , econometrics , european integration , linguistics , philosophy , physics , quantum mechanics , computer science , embedded system
The relationship between government debt, exports and economic growth has been the focus of a considerable number of academic studies in recent years. The economic crisis, which started in the United States mortgage market, quickly went global when mortgage-backed securities traded by financial institutions. Europe’s response was immediate regarding the measures to tackle the crisis. The establishment of common strategies was the long term goal of the European Union (EU). This paper examines the relationship between government debt, exports and economic growth in the EU countries with the highest level of government debt, using panel data over the period 1990-2014. The Fully Modified Ordinary Least Square (FMOLS) and Dynamic Ordinary Least Square (DOLS) methods are used to estimate the long run relationship between the variables. In addition, the Vector Error Correction Model (VECM) is used in order to investigate the causal relationship between the examined variables. The empirical results of the study revealed that there are both short and long run relationships. Findings suggest that that there is a unidirectional causality running from exports to economic growth as well as from exports and economic growth to government debt. The results provide evidence to support the export led-growth hypothesis. Exports are an important factor for economic development. Moreover, the results reveal that government debt is affected by exports both directly and indirectly through economic growth. Policy implications are then explored in the conclusions.