Household Debt and Economic Growth: The Role of Institutional Quality

Khairunnisa Abd Samad, Siti Nurazira Mohd Daud, Sylva Alif Rusmita

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

Household debt has a detrimental effect on economic growth. Thus, this study examines the connection between household debt and growth in institutional quality. The impact of the relationship on economic growth is assessed using a bias-corrected least square dummy variable of 43 nations. We discovered that institutional quality enhances the role of household debt in sustaining economic growth. Household debt is significantly detrimental to growth when institutional quality is low. Its harmful effect can be lessened with medium institutional quality. Interestingly, higher household debt is beneficial in sustaining growth if accompanied by better institutional quality. Household debt and institutions reinforce each other towards sustaining economic stability for countries with higher institutional quality. The findings are expected to assist central banks and other government authorities in formulating the relevant institutional settings for ensuring economic sustainability, such as prudent debt management and macro-prudential policy. Future studies may consider empirical analysis on a distinct split sample of advanced and emerging economies and employ different estimator methods.

Original languageEnglish
Pages (from-to)977-1001
Number of pages25
JournalPertanika Journal of Social Science and Humanities
Volume30
Issue number3
DOIs
Publication statusPublished - Sept 2022

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