Long-term effects of the selected economic variables on Serbia public debt

Abstract

Public debt control is one of the most important challenges which global economies face. The aim of this paper is to examine the long-term relationship between public debt and the selected economic variables in the Republic of Serbia by using the autoregressive distributed lag (ARDL) approach. The empirical analysis conducted on the basis of the annual data in the period from 2000 to 2019 includes, apart from the debt-toGDP ratio as the dependent variable, 6 selected economic indicators, used in the model as independent variables. The obtained results indicate that economic growth and gross fixed capital formation have a statistically significant negative long-term effect on the public debt, while general government final consumption expenditure (% of GDP) and trade openness (% of GDP) show a statistically significant positive long-term effect on the public debt. The estimated long-run coefficients related to inflation and unemployment have the expected sign, but they are statistically insignificant. The results of the study can be important to policy makers when defining the activities aimed at establishing public debt stability and achieving long-term sustainable economic results.