The Impact of Macroeconomic Factors in Public Capital Expenditures in Albania

Abstract

Public expenditures are the outlays incurred by the government entities to meet the collective demands for economic and social welfare of the citizens of the country. Developing economies have been faced with an increase of government operations and its impact on economic growth has become an emerging major public debate in academic and political tables. Regardless, the level of economic development, most of the countries applies a growth in public spending. The relationship between public expenditure and economic growth is important for developing countries, most of which have experienced changes in the level of public expenditure over time (Lindauer and Valenchik, 1992).Moreover the study investigates the direction the impact of public capital expenditure on the Albanian economic growth determinants. However, a number of studies have empirically examined this economic indicator and have given conflicting results that differ from country to country for the interdependence of this parameter. The mismatch between the performance of Albanian’s economy and massive increase in government capital expenditure over the years raises a critical question on its role in promoting economic growth and development.Using SPSS software program for conducting statistical analysis of data to estimate the model specified. With the adaptation of Wagner Model and using time series data of 18 years period (1996 - 2013) for the Albanian economy, the result shows that there exists no relationship between government spending and economic factors in Albania.The paper is laid out in four sections. The first section overviews the literature related to this issue for some sound studies and the aspects of Wagner’s law.  The second section provides a description on data and gives the applied methodology. The third section prescribes a review of the trend of public expenditures in Albania. The forth section presents results of analysis. The conclusion is presented in the fifth section.

Key words: public capital expenditures, macroeconomic factors, Albania, interrelationship.