Dynamic Relationship Between Government Spending, Final Consumption and Savings: Evidence from Southeast Europe

Abstract

Purpose: The purpose of this study is to explore the dynamic relationships between government saving, family consumption, private savings and population in selected countries in Southeast Europe. Design/Methodology/Approach: The descriptive statistical analysis was used to answer the research question, using Pearson correlation analysis, Unit root test, ARDL cointegration test, Johansen Tests for Cointegration and Granger Causality test. The data set covers the the period 2004-2018 in US$, calculated per capita. Findings: The results find a statistically significant and positive long-term relationship (lag_lag) between family consumption (Gt), government saving (Ct), gross savings (GSt) and per capita income (Yt). Though, the relationship between family consumption and population is considered statistically significant but negative. However, in the short term there is no causal link in any of the variables. Practical Implications: The results are clear and a strong message for policymakers and decision makers to prioritize increased government spending that causes final consumption growth as a catalyst to increase the demand for goods and services. Originality: This research paper highlights an empirical analysis based on real data obtained from the World Bank Statistics for five countries in the region.