Determinants of GDP Growth and Debt-to-GDP: A Comparative Study of Finland and Greece after Joining the European Monetary Union

Abstract

This paper analyzes Finland and Greece’s GDP growth and debt-to-GDP ratio post-European Monetary Union (EMU) accession. Using a robust ARDL with cointegration bounds model (2002–2021), and Johansen approach for cointegration, we find a positive impact of favorable trade balance on GDP growth and a negative impact on debt-to-GDP ratio in both nations long-term. Finland’s GDP growth is negatively affected by the country to EU average inflation ratio, while Greece sees increased debt-to-GDP due to it. Greece’s elevated government spending hampers its economic growth short- and long-term, and Finland’s debt rises in the long run with higher country to EU average unemployment.