The Asymmetric Drivers of Sustainable Economic Growth in North Macedonia: A NARDL Approach

Abstract

This paper investigates the asymmetric drivers of sustainable economic growth in North Macedonia, addressing the critical policy dilemma of balancing rapid macroeconomic convergence with the stringent environmental conditionalities of the European Union's "Green Agenda." Utilizing an extended Cobb-Douglas production function, the research incorporates gross fixed capital formation, labor force dynamics, and annual CO2 emissions into a unified econometric framework. To capture the structural rigidities and vulnerability to exogenous shocks inherent in transition economies, the study employs the Non-linear Autoregressive Distributed Lag (NARDL) bounds testing approach. The empirical results indicate the presence of long-run asymmetric cointegration among the variables. The decomposition of macroeconomic shocks reveals profound structural asymmetries: while positive shocks to capital investment remain the dominant engine of long-run economic expansion, the economy exhibits remarkable resilience to investment contractions, which exert no statistically significant permanent drag on aggregate output. Furthermore, the analysis exposes a persistent human capital "productivity trap," demonstrating that raw labor force expansion, devoid of skills upgrading, fails to stimulate structural growth. Most crucially, the study provides robust econometric proof of a "Green Dividend" in the Western Balkans. The NARDL estimation rejects the traditional industrial paradigm, revealing that while escalating pollution no longer fuels economic expansion, permanent reductions in CO2 emissions actively and significantly stimulate long-term GDP. These findings confirm that transitioning toward sustainable development and active decarbonization does not impose a "green penalty" on developing nations. The paper concludes that North Macedonia has a valuable opportunity to reframe environmental sustainability as a robust macroeconomic driver, strategically aligning capital investments and labor market reforms with the principles of the circular economy to ensure long-term national resilience.