The link between public investment strategy and public debt: An empirical assessment

Economic growth and long-term output are significantly impacted by public investments. Public debt serves as a major source of funding for these investments. The purpose of this study is to assess, along with a few other macroeconomic factors, the short- and long-term effects of Albania’s external and domestic debt on public investment. The empirical research was conducted using the autoregressive distributed lag (ARDL) estimation approach, based on annual data for the years 2000–2022. Among other things, the results demonstrated that Albania’s public investments are significantly and negatively impacted in the long-run term by external debt. However, for the period under consideration, there is no statistically significant correlation between internal debt and public investments. Furthermore, we discovered that the amount of public investments is positively and significantly correlated with both the gross domestic product (GDP) and foreign direct investments (FDI). The conclusions of the research can be helpful to the Albanian government because they shed light on the relationship between two main categories of public debt and public investments. The paper suggests that stringent project implementation guidelines be put in place by the government to guarantee profitable borrowing and closely monitor public debt.