Drivers of Economic Growth: A Comparative Analysis of Macedonia and Bulgaria
Drivers of Economic Growth: A Comparative Analysis of Macedonia and Bulgaria

Summary/Abstract: The aim of the paper is to investigate the sources of economic growth in Bulgaria and Macedonia. We use a growth accounting framework based on production, demand and sector-side approach, for the period 2000-2015. The tree-sided approach enables the analysis of similarities and differences of growth models in the two countries, through altered perspectives. The estimated results of the conventional decomposition of economic growth sources indicate that the main driver of annual rate of economic growth in both countries is investment in physical capital. However, the differences are found in the contribution of labour force and TFP contribution. The higher contribution of labour force is found in Macedonia, while the contribution of TFP is more significant in Bulgaria. Additionally, the results based on demand-side approach of the sources-of-growth analysis indicate that the households consumption and government spending are the main growth drivers in both countries, with negative effects of trade deficit and, as well, negative contribution of net export to economic growth. Furthermore, the estimated results of growth accounting based on sector-side approach show that the economic growth in both countries predominantly is driven by trade and service sector, with lower contribution of manufacturing. Finally, the paper depicts several policy suggestions and recommendations based on underlying insights, estimated results and conventional guiding principles.

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