BUDGET DEFICIT AND ECONOMIC GROWTH IN ALBANIA

The main aim of this research is t o analyze the short term and long run impact of the budget deficit on the economic growth in Albania (measured by GDP) for the period 1993 - 2014. To achieve this aim the Cointegration Test will be used. The depedent variable is GDP, while the indepedent var iables are foreign direct investmnet and budget deficit. The Granger test was used to detect the casuality relationships between the variables . From the analysis resulted that it does exist a one side casuality relationship between GDP and budget deficit and viceversa. The results showed that it does not exist a casual ity relationship between f oreign direct investment and budget deficit. The study concluded that the budget deficit and the economic growth have inverse relationship in the long run. These results are in accordance with the endogen ous growth theories, and so we can say that it does exist a sustainable relationship between the variables.