Household Debt's Impact On Economic Growth, Determinants and Signal To Systemic Banking Crises
The rapid increase in household debt has raised concerns over its influence on economic growth since it has proven to be detrimental to growth. Extensive empirical evidence shows that the unfavourable household debt-growth nexus is driven by a surge in house prices. Nevertheless, very few studies ha...
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my-usim-ddms-12976 |
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uketd_dc |
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Universiti Sains Islam Malaysia |
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USIM Institutional Repository |
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| topic |
Household debt Financial crises -- Prevention Household debt |
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Household debt Financial crises -- Prevention Household debt Khairunnisa Binti Abd Samad Household Debt's Impact On Economic Growth, Determinants and Signal To Systemic Banking Crises |
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The rapid increase in household debt has raised concerns over its influence on economic growth since it has proven to be detrimental to growth. Extensive empirical evidence shows that the unfavourable household debt-growth nexus is driven by a surge in house prices. Nevertheless, very few studies have focused on the link between household debt and growth was led by the supply side (financial development), which indirectly leads to banking crises. Due to the downside risk integral in the supply side through the role of household debt and growth, the scenario signals the role of household debt as an indicator in the Early Warning Signal (EWS) model for systemic banking crises. This study aims to discuss the issue of household debt as well as its cause and impact on economic stability in three aspects: debt-growth nexus, the determinants of household debt, and the probability of systemic banking crises. The objectives of this study are, first, to examine the impact of household debt on growth and second, to investigate the role of institutional quality in the growth model. Third, this study seeks to discuss the role of financial development as a catalyst to household debt. Finally, the study aims to investigate the role of household debt as an indicator in the EWS for predicting the probability of systemic banking crises. This study analysed 43 countries of advanced and emerging economies for the period from 1980 to 2018 by employing a bias-corrected Least Square Dummy Variable (LSDVC) estimator and the logit regression method. The main empirical findings are a negative association between household debt and economic growth, while institutional quality has a weak positive effect on growth. Notably, the evidence shows that the negative effect of household debt on growth is stronger at a lower level of institutional quality. The results also reveal financial development as an important variable in determining the household debt accumulation. Hence, the results indirectly highlight that the rapid build-up of household debt arising from financial development has an inherent risk leading to economic instability. This study finds household debt is a significant indicator for the EWS of systemic banking crises. The findings suggest the growing influence of financial development as a leading cause of the detrimental effect of household debt on growth and in increasing the probability of crises. Nevertheless, the negative effect of household debt on growth can be reduced through the conditional role of institutional quality. Also, the findings of the study found that the relationship between household debt and growth is stronger and increases the probability of banking crises for advanced economies, but not for emerging economies. Hence, this study provides a broad practical understanding that will assist scholars and policymakers in finding ways to avoid the harmful effect of debt on growth in the future. Besides, this study offers an informative guideline for policymakers in designing suitable policies that suit countries’ characteristics in ensuring a favorable effect of debt in sustaining economic stability. In particular, the findings are expected to assist central banks and other government authorities in monitoring the accessibility and size of financial institutions and the relevant institutional settings in ensuring the positive effect of household debt on growth. Thus, the results are expected to be beneficial in alerting the government to be more cautious of any unexpected change in debt and prepared for the downside risk so that the risk could be managed properly. Future studies may consider alternative proxies for institutions and explore using different estimator methods. |
| format |
Thesis |
| author |
Khairunnisa Binti Abd Samad |
| author_facet |
Khairunnisa Binti Abd Samad |
| author_sort |
Khairunnisa Binti Abd Samad |
| title |
Household Debt's Impact On Economic Growth, Determinants and Signal To Systemic Banking Crises |
| title_short |
Household Debt's Impact On Economic Growth, Determinants and Signal To Systemic Banking Crises |
| title_full |
Household Debt's Impact On Economic Growth, Determinants and Signal To Systemic Banking Crises |
| title_fullStr |
Household Debt's Impact On Economic Growth, Determinants and Signal To Systemic Banking Crises |
| title_full_unstemmed |
Household Debt's Impact On Economic Growth, Determinants and Signal To Systemic Banking Crises |
| title_sort |
household debt's impact on economic growth, determinants and signal to systemic banking crises |
| granting_institution |
Universiti Sains Islam Malaysia |
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my-usim-ddms-129762024-05-29T18:12:26Z Household Debt's Impact On Economic Growth, Determinants and Signal To Systemic Banking Crises Khairunnisa Binti Abd Samad The rapid increase in household debt has raised concerns over its influence on economic growth since it has proven to be detrimental to growth. Extensive empirical evidence shows that the unfavourable household debt-growth nexus is driven by a surge in house prices. Nevertheless, very few studies have focused on the link between household debt and growth was led by the supply side (financial development), which indirectly leads to banking crises. Due to the downside risk integral in the supply side through the role of household debt and growth, the scenario signals the role of household debt as an indicator in the Early Warning Signal (EWS) model for systemic banking crises. This study aims to discuss the issue of household debt as well as its cause and impact on economic stability in three aspects: debt-growth nexus, the determinants of household debt, and the probability of systemic banking crises. The objectives of this study are, first, to examine the impact of household debt on growth and second, to investigate the role of institutional quality in the growth model. Third, this study seeks to discuss the role of financial development as a catalyst to household debt. Finally, the study aims to investigate the role of household debt as an indicator in the EWS for predicting the probability of systemic banking crises. This study analysed 43 countries of advanced and emerging economies for the period from 1980 to 2018 by employing a bias-corrected Least Square Dummy Variable (LSDVC) estimator and the logit regression method. The main empirical findings are a negative association between household debt and economic growth, while institutional quality has a weak positive effect on growth. Notably, the evidence shows that the negative effect of household debt on growth is stronger at a lower level of institutional quality. The results also reveal financial development as an important variable in determining the household debt accumulation. Hence, the results indirectly highlight that the rapid build-up of household debt arising from financial development has an inherent risk leading to economic instability. This study finds household debt is a significant indicator for the EWS of systemic banking crises. The findings suggest the growing influence of financial development as a leading cause of the detrimental effect of household debt on growth and in increasing the probability of crises. Nevertheless, the negative effect of household debt on growth can be reduced through the conditional role of institutional quality. Also, the findings of the study found that the relationship between household debt and growth is stronger and increases the probability of banking crises for advanced economies, but not for emerging economies. Hence, this study provides a broad practical understanding that will assist scholars and policymakers in finding ways to avoid the harmful effect of debt on growth in the future. Besides, this study offers an informative guideline for policymakers in designing suitable policies that suit countries’ characteristics in ensuring a favorable effect of debt in sustaining economic stability. In particular, the findings are expected to assist central banks and other government authorities in monitoring the accessibility and size of financial institutions and the relevant institutional settings in ensuring the positive effect of household debt on growth. Thus, the results are expected to be beneficial in alerting the government to be more cautious of any unexpected change in debt and prepared for the downside risk so that the risk could be managed properly. Future studies may consider alternative proxies for institutions and explore using different estimator methods. Universiti Sains Islam Malaysia 2021-01 Thesis en_US https://oarep.usim.edu.my/handle/123456789/12976 https://oarep.usim.edu.my/bitstreams/a7cd672b-c679-433d-9b15-0bc8bd940368/download 8a4605be74aa9ea9d79846c1fba20a33 https://oarep.usim.edu.my/bitstreams/5149c9d2-7778-4167-841d-803e3218873c/download e0dd490c2f5e267af9226e812d0cf897 https://oarep.usim.edu.my/bitstreams/f51b03c0-1c32-458c-9140-b6ebfd5fc24a/download 8de394f0298c2164ec6af6c38654fe8b https://oarep.usim.edu.my/bitstreams/a72ecc5f-bfce-4335-b70a-f3ca4a2fcb70/download 6f8b41f492e99895068660d09feda852 https://oarep.usim.edu.my/bitstreams/2043a142-2a79-439e-9b18-4cfb054e7b57/download f6bece8934fad2b817a54d91ac9225fa https://oarep.usim.edu.my/bitstreams/137f5639-294c-41cd-8779-c73d943367e0/download 9552a49a437f000b98d2938b429ef7aa https://oarep.usim.edu.my/bitstreams/bae58be0-2cd9-44b1-9109-24fa8732ed64/download df079500c515b747933c5e58e7c7e94a https://oarep.usim.edu.my/bitstreams/69f2f8d4-472e-4f00-835a-728fdce9fa79/download cc61a49852566f8a3ceb3b7023331fd1 https://oarep.usim.edu.my/bitstreams/77d8dc4a-0cb5-4a88-bfd8-c78fe28a42b6/download a5c88ed1c37eac378253bcd01d6d867d https://oarep.usim.edu.my/bitstreams/a63ca7a6-d027-4552-b3ba-199820362d33/download 95fc3056265e8084dc7c1a6e3f291a4c https://oarep.usim.edu.my/bitstreams/66a42a70-6628-4a15-9eae-daa3211d4b7a/download d1dc47edf1e078aeb93b8a3b4ece52e3 https://oarep.usim.edu.my/bitstreams/c6ce1427-f345-42be-9e10-a7d2485c8fce/download 9ca94199e0cac32460e7ce8924d25318 https://oarep.usim.edu.my/bitstreams/ed8859e2-a09d-476d-b607-d5ff96ae0ff2/download 9bf543e497ff886db23342a7f1263ca3 https://oarep.usim.edu.my/bitstreams/8403aa00-7019-471b-bec5-f6d293dd4c2e/download 42ebab5f426ded0a0f40c93ae8f0f595 https://oarep.usim.edu.my/bitstreams/2ead33ac-81af-4ac1-83c1-35be06172b47/download 3a03c8ccea420f2c32fe2423dd4a1e47 https://oarep.usim.edu.my/bitstreams/1950974a-ef68-4ee6-9db1-9df1d02160ac/download fcffa36ab0b0051399e576cace117480 https://oarep.usim.edu.my/bitstreams/c166753a-b7b0-4312-aeab-0d1994e1fa74/download a016ea3cfef5bddd3b009b7ca6b22aac https://oarep.usim.edu.my/bitstreams/fe47debd-9d73-4090-bc0c-3833df51fd76/download f74d0d53ca1ac786fa140821ebb9a431 https://oarep.usim.edu.my/bitstreams/c02e3075-44dd-481a-bc84-2c9beac35d19/download e28e69d1f5408d8f619a7abc4d154590 Household debt Financial crises -- Prevention Finance, Personal |