The Impact of Government Debt and Debt Servicing on Economic Growth An empirical approach for Albania

As the government spending around the world have extremely increased, many economies are concerned about the negative effects that high levels of debt have on the economic growth. Many empirical studies show a non-linear relationship between debt and economic growth. This paper uses linear regression model to study the impact of government debt and external debt service on economic growth in Albania. By using historical data from 1991 to 2010 it shows the existence of a positive effect of internal debt and external debt on economic growth of Albania. In contrast if finds a negative relationship between external debt service and economic growth. Higher levels of external debt are accompanied with higher amounts of money flowing out of the country as a service to the debt. This negative impact of external debt service on economic growth derived from higher levels of external debt fosters the government to reduce the level of external debt through more consolidated monetary and fiscal policies.