An Econometric Analysis of Determinants of Economic Growth in Crisis Countries of European Union

ABSTRACT: This study investigates the impact of several macroeconomic variables on economic growth of five selected European countries which are considered to be ‘crisis countries’ of the European Union: Portugal, Ireland, Italy, Greece and Spain. The sample period of the analysis is 1986-2010. The econometric and policy related results of the study are presented in three parts: the first part focuses on presentation and discussion of econometric results regarding the relationship between growth rate of GDP and each one of the selected macroeconomic parameters, namely the domestic investment rate, domestic saving rate, inflation rate and trade openness. The estimation results are based on both individual country regressions and pooled regression analysis. In the second part a comparative analysis of the historical averages of the main macroeconomic indicators of each country is carried out for pre and post Euro periods. Specifically the alteration of GDP growth rate, domestic investment and saving rate, inflation rate, trade openness, budget balance of the government, central government debt and unemployment rate is analyzed. Finally in the last part key economic policies implemented in each country over the sample period (1986-2010) are discussed. Results suggest that domestic investment and saving rates are positively associated with GDP growth rate for each country in the sample. On the other hand estimation results regarding the effects of inflation rate and trade openness are mixed. While in the cases of Portugal, Italy, Ireland and Spain inflation rate has been found to be positively correlated growth rate of GDP, in Greece inflation seems to have had negative effect on economic growth. Trade openness has been found to be positively related to GDP growth in Portugal, Italy and Spain, in Ireland and Greece its association with economic growth (contrary to theoretical expectation) seems to be negative. Finally, the comparative analysis of data for each country has suggested that there is no marked improvement in the macroeconomic performance in the post-Euro period relative to pre-Euro period. Keywords: GDP growth rate, Eurozone, savings, investments, inflation, trade openness. ……………………………………………………………………………………………………………………………………………………………………………………………………………………