THE EFFECT OF INDUSTRIAL PRODUCTION AND TRADE BALANCE ON NATIONAL DEBT LEVELS: EVIDENCE FROM THE EUROPEAN ECONOMY

The goal of the current research is to examine structural determinants of national debt levels. Mainstream economic theory holds public spending as the major cause of budget deficits and the accumulation of nationaldebt. This paper adopts a somehow different approach, considering industrial production and trade balance as major causes of a country’s debt. In order to test the validity of this hypothesis, it examines the relationship between national debt, industrial production and trade balance in an econometric model. The data used come from Eurostat and they concern GDP, debt, trade balance and industrial production for 26 European economies.