Authors: Athanasios Tsagkanos, Stavroula Panousaki, Konstantinos Syriropoulos, Christoforos Konstantatos

Title: Differences on public debt between south and north euro area

Abstract

We study the short- run and the long-run relationship of investment, central government debt, savings, inflation, unemployment with growth in a panel of eight euro area countries, considered (i) Belgium, (ii) France, (iii) Germany (iv) Greece, (v) Italy, (vi) Netherlands (vii) Portugal and (viii) Spain using Error Correction Model (ECM) techniques. For the period that expands from 1975 to 2016 we investigate the relationship of five macroeconomic variables, (i) foreign direct investment, (ii) central government debt, (iii) gross domestic savings (iv) inflation, (v) unemployment with gross domestic product adopting the heterogeneity and nonlinearity approaches. We find a negative (positive) long run relationship of debt and inflation (savings and unemployment) with growth in euro area south countries. However, in north euro area countries our results reveal a long run negative (positive) relationship between debt and unemployment (savings) with growth. We also observe statistically significant asymmetric effect between the negative and positive change of debt on growth only in euro area north countries.