Household debt acts as a double-edged sword, exerting heterogeneous effects on economic growth. Using quarterly data for South Korea (2007–2024) and China (2007–2023), this study examines short- and long-run impacts through ordinary least squares (OLS), generalized method of moments (GMM), and two-stage least squares (2SLS) estimations with a mediation framework. For South Korea, GMM results show short-run growth effects of 0.077 and long-run effects of −0.055, while 2SLS estimates are 0.059 and −0.046. For China, short-run effects are 0.069 (GMM) and 0.168 (2SLS), with long-run effects of −0.133 and −0.096. Consumption-mediated effects further amplify this asymmetry, indicating that debt-driven demand supports short-term growth but constrains long-term performance.
AladangadyA (2017) Housing wealth and consumption: evidence from geographically linked microdata. American Economic Review107(11): 3415–3446.
2.
AlterAFengAXValckxN (2018) Understanding the Macro-Financial Effects of Household Debt: A Global Perspective. Washington, DC: International Monetary Fund.
3.
ArcandJLBerkesEPanizzaU (2015) Too much finance?Journal of Economic Growth20: 105–148.
4.
AttanasioOPWeberG (2010) Consumption and saving: models of intertemporal allocation and their implications for public policy. Journal of Economic Literature48(3): 693–751.
5.
BeckTDegryseHKneerC (2014) Is more finance better? Disentangling intermediation and size effects of financial systems. Journal of Financial Stability10: 50–64.
6.
BerishaEMeszarosJ (2017) Household debt, economic conditions, and income inequality: a state level analysis. The Social Science Journal54(1): 93–101.
7.
CecchettiSGKharroubiE (2019) Why does credit growth crowd out real economic growth?The Manchester School87: 1–28.
CrawleyEKuchlerA (2023) Consumption heterogeneity: micro drivers and macro implications. American Economic Journal: Macroeconomics15(1): 314–341.
13.
DengYMorckRWuJ, et al. (2015) China’s pseudo-monetary policy. Review of Finance19(1): 55–93.
14.
DrehmannMJuseliusM (2014) Evaluating early warning indicators of banking crises: satisfying policy requirements. International Journal of Forecasting30(3): 759–780.
15.
GarberGMianAPonticelliJ, et al. (2019) Household debt and recession in Brazil. In: HaughwoutAMandelB (eds) Handbook of US Consumer Economics. Amsterdam: Elsevier, pp.97–119.
16.
GoldsmithRW (1959) Financial structure and development as a subject for international comparative study. In:GoldsmithRW (ed.) The Comparative Study of Economic Growth and Structure. Cambridge, MA: NBER, pp.114–123.
17.
Gómez-PuigMSosvilla-RiveroS (2017) Heterogeneity in the debt-growth nexus: evidence from EMU countries. International Review of Economics & Finance51: 470–486.
18.
HungF-S (2009) Explaining the nonlinear effects of financial development on economic growth. Journal of Economics97: 41–65.
19.
JappelliTPistaferriL (2010) The consumption response to income changes. Annual Review of Economics2(1): 479–506.
JordàÒSchularickMTaylorAM (2013) When credit bites back. Journal of Money, Credit and Banking45(s2): 3–28.
22.
JordàÒSchularickMTaylorAM (2015) Leveraged bubbles. Journal of Monetary Economics76: S1–S20.
23.
JordàÒSchularickMTaylorAM (2020) The effects of quasi-random monetary experiments. Journal of Monetary Economics112: 22–40.
24.
KangJK (2017) The effects of household debt on consumption and economic growth. Economic Analysis (Quarterly)23(2): 28–57.
25.
KingRGLevineR (1993) Financial intermediation and economic development. In: MayerCVivesX (eds) Capital Markets and Financial Intermediation. Cambridge: Cambridge University Press, pp.156–189.
26.
LawSHSinghN (2014) Does too much finance harm economic growth?Journal of Banking & Finance41: 36–44.
McKinnonRI (2010) Money and Capital in Economic Development. Washington DC: Brookings Institution Press.
29.
MianASufiA (2009) The consequences of mortgage credit expansion: evidence from the US mortgage default crisis. The Quarterly Journal of Economics124(4): 1449–1496.
30.
MianASufiA (2018) Finance and business cycles: the credit-driven household demand channel. Journal of Economic Perspectives32(3): 31–58.
31.
MianARaoKSufiA (2013) Household balance sheets, consumption, and the economic slump. The Quarterly Journal of Economics128(4): 1687–1726.
32.
MianASufiAVernerE (2017) Household debt and business cycles worldwide. The Quarterly Journal of Economics132(4): 1755–1817.
33.
MianASufiAVernerE (2020) How does credit supply expansion affect the real economy? The productive capacity and household demand channels. The Journal of Finance75(2): 949–994.
MüllerKVernerE (2024) Credit allocation and macroeconomic fluctuations. Review of Economic Studies91(6): 3645–3676.
36.
PariboniR (2016) Household consumer debt, endogenous money and growth: a supermultiplier-based analysis. PSL Quarterly Review69(278): 211–234.
37.
ParkDShinKTianS (2021) Does bond market development enhance the banking sector’s efficiency in resource allocation? Industry-level evidence from Korea. The North American Journal of Economics and Finance57: 101402.
38.
SchularickMTaylorAM (2012) Credit booms gone bust: monetary policy, leverage cycles, and financial crises, 1870–2008. American Economic Review102(2): 1029–1061.
39.
ShinHSYiHC (2019) The Korean housing market: its characteristics and policy responses. In: NijskensRLohuisMHilbersP, et al (eds) Hot Property. Cham: Springer, pp.181–194.
40.
SufiA (2023) Housing, household debt, and the business cycle: an application to China and Korea. Working paper, National Bureau of Economic Research, Cambridge, MA, July.
41.
ThurowLC (1969) The optimum lifetime distribution of consumption expenditures. American Economic Review59(3): 324–330.
42.
TuncCKilincM (2023) Household debt and economic growth: debt service matters. Open Economies Review34(1): 71–92.
