Munich Personal RePEc Archive

Quantifying the Effects of Financialisation and Leverage in China

Sun, Lixin (2015): Quantifying the Effects of Financialisation and Leverage in China.

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Abstract

This paper attempts to examine the effects of financialisation and leverage on China’s economic growth and income inequality. The empirical results suggest that the effects of the financialisation indicators are ambiguous and weak; however the leverage indicators do have negative impacts. We find that the ratio of non-financial private debt to GDP has significantly negative impact on China’s growth, whereas the effects of the ratio of public debt to GDP are insignificant. Moreover, at the disaggregated level of non-financial private debt, it is the higher non-financial corporate debt level rather than the household debt level that remarkably undermines China’s economic growth. Finally, we find that the rise in the household debt level could significantly reduce the income inequality, and the ratio of M2 to GDP is positively related with the income inequality in China.

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