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May 7, 2026Journal of Asian and African Studies0 citations

The Impact of Household Debt on Economic Growth via Consumption: Evidence from South Korea and China

KHKyuyeon HwangKorea Institute for Industrial Economics and Trade JLJoohyeong LeeYonsei University

Key Points

This research aims to analyze the impact of household debt on economic growth via consumption in South Korea and China.
Used quarterly data from 2007 to 2024 for South Korea and 2007 to 2023 for China.
Employed ordinary least squares, generalized method of moments, and two-stage least squares for estimation.
Applied a mediation framework to examine the relationship between debt and growth.
Short-run growth effects in South Korea were 0.077 (GMM) and 0.059 (2SLS); long-run effects were -0.055 and -0.046.
In China, short-run effects were 0.069 (GMM) and 0.168 (2SLS); long-run effects were -0.133 and -0.096.
Consumption-mediated effects show that while debt may boost short-term growth, it can hinder long-term performance.

Abstract

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.

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