The Impact Of Non-financial Corporation Leverage And Household Leverage On Economic Growth

The Great Depression in 1933 and the global financial crisis i-n 2008 brought huge losses to the United States and many economiesaround the world.It has been found that before the crisis occurred,the private sector's leverage rate rose rapidly.After the crisis,the relevant economies were forced to take the road of de-leveraging.In recent years,China's economic structure has begun to transform,the economy has entered a new normal,and the economic growth rate has declined to a certain extent.At the same time,the leverage of China's non-financial corporation sector has experienced a significant increase,and it has also entered “de-leveraging”.In the stage of “structural de-leverage” and “stable leverage”,the relationship between leverage and economic growth is of great significance for the steady advancement of de-leverage under the current steady growth in China.Based on the conclusions and shortcomings of the existing research,this paper combines the theoretical and empirical analysis to decompose the private sector leverage into non-financial corporation sector leverage and household sector leverage,and study the relationship between them and economic growth.In the theoretical analysis,this paper reviews and comments on the relevant research results of scholars at home and abroad,systematically combs the financial deepening hypothesis,debt-deflation theory,financial instability hypothesis,etc.The differences and connections have laid the theoretical foundation for the following.Secondly,combining the relationship between leverage and economic growth reflected in various theories,while considering the impact of leverage on economic growth may be affected by the dynamic balance between leverage and economic growth,this paper builds a unified theoretical analysis framework.In the empirical research section,this paper uses the data of 43 major economies from 1998 to 2017,and uses the two-way FE panel regression model to study the impact of leverage on economic growth,then analyzes the difference in its impact mechanism and effect.The conclusion of this paper is as follows:(1)For the non-financial corporation sector and the household sector,leverage has a significant negative impact on economic growth,and this negative impact decreases as the economic growth rate increases,and increases as the economic growth rate decreases.The increase in leverage can enable firms to obtain funds for technological innovation and expansion of investment,and households can improve consumption levels,which can have a positive effect on the economy,then the repayment ability of enterprises and households can be improved.However,if the leverage rises too fast,the growth rate of profits of enterprises will decline;or it will squeeze future consumption and savings,which is not conducive to economic growth.If the economy moves toward an irrational state of prosperity,economic entities are too optimistic about future,and may turn into speculative and Ponzi financing units.Excessive leverage growth cannot be supported by the economy.A debt-deflation mechanism may be triggered in the event of an adverse external shock.If the economy is in the down-stage,the profitability of enterprises is not high,and the disposable income of households is relatively low.The increase in leverage of the two sectors will only further increase the debt burden of economic entities,thus further strengthening the negative impact on the economy.(2)When the economic growth rate is lower than the critical value,the debt tightening effect of the household sector is greater than that of the non-financial enterprise sector;when the economic growth rate is higher than the critical value,the household sector promotes the economy less than the non-financial enterprise sector.Mainly because the increase in leverage in the household sector has a smaller positive effect on productivity growth,and it may also reduce the savings rate,which is not conducive to long-term economic growth.(3)For the non-financial corporate sector,the debt tightening effect of leverage ratio is significant in developed economies,but not in emerging markets and developed economies.It may be because the latter's financial development level is still not high,and the positive effects of financial deepening will make up for the debt tightening effect.For the household sector,the debt tightening effect of leverage is significant in the two types of economies.This paper mainly puts forward the following suggestions:(1)China's economy has entered a new normal state.During this period,it is necessary to maintain a prudent attitude toward the leverage of enterprises and the family sector.If the economic growth rate cannot support the payment of interest on private sector debt,adding leverage may further lead to a decline in economic growth.(2)It is necessary not only to monitor the level of leverage of the whole society,but also to examine the sub-sector.The leverage ratio caused by consumer loans in the household sector has increased,and its long-term contribution to economic growth has been relatively small.(3)For the non-financial corporation sector,it is also necessary to consider the dynamic relationship between leverage and economic development level,pay attention to the leverage structure of different natures and different industries,to ensure that the capital efficiency formed by increasing leverage is fully improved.