Economic Growth Determinants in South-East European Countries: A System Generalized Method of Moments Approach

Abstract

Economic growth is a key point of macroeconomic policy and is the subject of constant attention and debate by professional public and policy makers. Theoretical and empirical research indicates differences in the level and direction of determinants’ influence on the growth rate. The main goal of our article is to construct a model of economic growth determinants in South-East European countries. We used an unbalanced panel of 12 selected SEE countries over the period 2006–2019. Our empirical findings have shown that the most robust results can be obtained using a two-step generalized method of moments (GMM) model with dummy variable. In our dynamic model, we found that trade openness and gross fixed capital formation have a positive impact on economic growth, while government expenditures negatively determine economic growth. Gross fixed capital formation has the greatest positive impact on economic growth, while government expenditure has the greatest negative impact.