DETERMINANTS OF GDP GROWTH: AN ECONOMETRIC ANALYSIS OF EDUCATION, TAXATION, INVESTMENT, AND EXPENDITURE EFFECTS

This study employs an econometric model estimated using EViews to investigate the principal determinants of GDP growth in Albania by analyzing key economic variables in logarithmic form. The model explores the effects of education level, capital development, value-added tax (VAT), personal income tax (PIT), with a two-period lag, gross capital formation (GCF) lagged by two periods, and current expenditure (CUREXP) lagged by three periods on Albania’s economic growth. Estimation results reveal that education, capital development, VAT, and current expenditure positively and significantly influence GDP growth, underscoring their critical roles in Albania’s economic expansion. In particular, VAT shows the largest positive coefficient, highlighting its strong association with growth, possibly reflecting underlying economic activity or effective fiscal policy in Albania. The positive coefficient of lagged personal income tax indicates a delayed yet favorable impact on growth, thereby emphasizing the dynamic effects of taxation policies. Conversely, the negative coefficient for lagged gross capital formation suggests that past investments do not immediately translate into growth for Albania and may temporarily reduce it, potentially due to adjustment costs or inefficiencies. The negative constant term adjusts the baseline for unobserved factors affecting GDP growth. Incorporating lagged variables captures the timing and lagged nature of economic influences in Albania’s context. These findings offer important insights for Albanian policymakers striving for sustainable growth, highlighting the need to enhance education, optimize taxation, and manage government expenditure to foster economic development. The data used for this analysis from 1998 - 2023 were sourced from the World Bank.