Brikena Leka, Arjana Lleshaj


This study aims to determine whether foreign or domestic borrowing is the best alternative for Albania. A small country with an underdeveloped economy, Albania consistently had problems with debt management, especially external debt, so it’s expected the domestic borrowing to be a better alternative. Referred on data for 1996 to 2018, the method used is OLS and is analyzed through multiple regressions the factors that affect public debt as of external and domestic debt. Based on empirical results, the public debt is affected by Lending interest rate and Monetary Base for Domestic Debt and Exchange Rate for External Debt. The monetary base and the exchange rate have a significant positive effect on public debt, while the lending interest rate has a significant negative effect. The trend of Public debt does not reflect the same trend with Long-Term Government Bond Yields for Euro Area, because of ineffective management of external borrowing. This study will be a concrete argument on policy orientation and public debt management.

JEL: H63; H81

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public debt, external debt, domestic debt, empirical analysis

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