Panel regression for the GDP of the Central and Eastern European countries using time-varying coefficients

The integration of Central and Eastern European (CEE) countries into the European Economic Area serves as a valuable experiment for the regional economic development theory.

The long-lasting convergence of these economies with more advanced Western Europe exhibits a few standard features and varying policies implemented.

Even the Baltic countries, which started from very similar starting positions, demonstrate their unique trajectories of development.

We propose a panel data regression model that allows coefficients to vary over time, offering a method to compare the contributions of several macroeconomic factors to the GDP growth of CEE countries.

In particular, we regress the annual change of GDP per capita in PPP terms as a function of achieved GDP, price, trade, investment, and debt levels.

Although other authors have extensively investigated selected regressors, the quantitative comparison of their contribution to GDP growth is a new result of the proposed method.

Time-varying slope coefficients in this approach describe the external economic environment in which countries implement their own policies.

The panel consists of 11 Central and Eastern European countries (Bulgaria, Czechia, Estonia, Croatia, Latvia, Lithuania, Hungary, Poland, Romania, Slovenia, and Slovakia), which have been observed annually from 1995 to 2024.

While the main selected factors of this investigation contribute to economic growth, in agreement with previous findings, the role of private debt appears vital in determining growth pace.

Our results serve as an argument for the further theoretical and empirical investigation of private debt contribution to economic growth.