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

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.