A comprehensive analysis of the most important factors determining economic growth in the European Union

The economic growth literature is vast and well established. But still there is not yet a unified economic growth model which encompasses all the determinants influencing it. Durlauf et al. (2005) found that 145 variables can be considered statistically significant in determining growth variation. This paper aims at analyzing the main influences on economic growth. We analyse this relationship both from a public side view but also from the private side. We use unbalanced panel data that is represented by the 28 European Union countries during 25 years (from 1990 to 2014).  In order to test the influence of the main factors that determine economic growth variation we apply three different panel data estimation techniques, represented by the fixed-effect model, the first differenced generalized method of moments and the last being a system generalized method of moments estimator. To test the link between private and public determinants on economic growth we use more than 30 variables, ranging from public expenditure (defence, health, social protection, education, etc.), public investment, public deficit, government debt, private investment, private sector debt. We have also variables that cannot be included in only one category such as life expectancy, final energy consumption, fixed capital formation, employment rates, FDI, imports and exports and openness, and inflation, population, education and school enrolment for different school levels. Also we use several dummy variables to control for the efficiency of governance in the European Union following the methodology applied by Kauffman, Kraay and Mastruzzi (2010). We will use also regional dummy variables. We expect to find that foreign direct investment, openness, productive public expenditures have a positive influence on economic growth as the literature already suggests. Private investment should be more beneficial to growth than public investment. Certain components of final energy consumption (industry, households, services, agriculture) will have different influences on growth. Population growth and inflation should be negatively correlated with economic growth. In conclusion, this article will be an overview of the most important influences that have a significant impact on economic growth in the European Union.