Leverage And Economic Growth

After the 2008 financial crisis,high leverage has become a worldwide problem.Following the 4 trillion credit stimulus plan,leverage rise rapidly in China.High leverage has also become one of the main risky factors of the Chinese economy.The Party Central Committee and the State Council have attached great importance to it.In October 2015,the Fifth Plenary Session of the 18th CPC Central Committee put forward the deleveraging requirement.Meanwhile,“De-leverage" has also become one of the five major tasks of the supply-side structural reform of the Central Economic Work Conference at the end of the year.In July 2017,the Fifth National Financial Work Conference once again proposed to actively and steadily promote economic de-leverage and deal with the relationship between stable growth,structural adjustment,and total volume control.Based on the current policy of de-leverage and steady growth,this paper summarizes the literatures from three aspects.First,leverage promotes economic growth;Second,leverage inhibits economic growth;Third,the relationship between leverage and economic growth is nonlinear.The analysis suggests that leverage and economic growth is more likely to be a non-linear relationship.It is not simply to promote or inhibit the relationship between economic growth,and the volatility in leverage ratio and the rapid rise of leverage are not promoted to economic growth.This paper uses the system GMM estimation method to empirically analyze the dynamic panel data of 88 countries and regions from 1981 to 2017.The model uses GDP growth rate and per capita GDP growth rate as proxy indicators for economic growth as explanatory variables;private sector credit/GDP is used as a proxy indicator for leverage,and total bank credit/GDP is used as leverage in the robustness test.Leverage volatility and leverage growth rates were also introduced as key explanatory variables in the model,and other control variables were added to make the results more credible.This paper finds that there is a U-shaped relationship between leverage and economic growth.When the leverage ratio is less than the inflection point,the leverage ratio increases,the economic growth rate decreases.After the leverage ratio crosses the inflection point,the economic growth increases with the increase of the leverage ratio.The rate is rising;to a certain extent,excessive leverage and under-sufficiency are conducive to economic growth;the increase in leverage ratio fluctuations and the excessive growth rate of leverage ratios are not conducive to economic growth,and the stability of leverage ratio is conducive to economic growth.Combine the current requirements of deleveraging and steady growth,as well as the conclusions,this paper propose corresponding policy suggestions.De-leverage needs to be stabilized and cannot be rushed.It is necessary to de-leverage when the total leverage ratio and macro-economy are stable.