Sectoral Debt Capacity and Business Cycles: Developing Asia and the World Economy

34 Pages Posted: 15 May 2023

See all articles by Bada Han

Bada Han

Bank of Korea; International Monetary Fund (IMF)

Rashad Ahmed

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Yothin Jinjarak

Asian Development Bank

Joshua Aizenman

University of Southern California - Department of Economics

Date Written: May 12, 2023

Abstract

This paper reviews the patterns of sectoral debts and growth and the mechanisms explaining the adverse effects of debt burdens on growth rates. The empirical analysis covers a sample of 55 emerging and frontier market economies. Future economic growth is more sensitive to rising household debt than corporate debt. However, these effects are highly heterogenous across economies and depend on relative income. For the developing economies with a gross domestic product per capita in 2010 below $10,000 (purchasing power parity-adjusted in 2017 international dollar), the coefficients of all types of sectoral debts are negative and significant at least at the 5% level. For developing economies at higher income levels, household debts matter more than other sectoral debts for subsequent economic growth.

Keywords: household debts, corporate debts, public debts, financial stability, credit cycles

JEL Classification: E44, F34, G51, H63

Suggested Citation

Han, Bada and Ahmed, Rashad and Jinjarak, Yothin and Aizenman, Joshua, Sectoral Debt Capacity and Business Cycles: Developing Asia and the World Economy (May 12, 2023). Asian Development Bank Economics Working Paper Series No. 681, Available at SSRN: https://ssrn.com/abstract=4448323 or http://dx.doi.org/10.2139/ssrn.4448323

Bada Han

Bank of Korea ( email )

Korea, Republic of (South Korea)
82-2-759-5983 (Phone)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Rashad Ahmed

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Yothin Jinjarak (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Joshua Aizenman

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

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