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How Does High Debt Level Affect Productivity?——An Explanation Based on U-shaped Relationship in China's Industry

【Authors】
ZHANG Jie
【WorkUnit】
Renmin University of China, 100872.
【Abstract】

Based on the panel data of China’s industrial sector from 2001 to 2014, and on the basis of summarizing some important facts, this paper finds that the debt ratio of China’s industrial sector is gradually declining, in contrast to the sharp and rapid rise of China’s overall debt ratio. In China’s industrial sector, there is a significant differentiation in the trend of debt ratios in different industries. Under the Chinese scenario, debt ratios have a significant U-shaped relationship with industrial productivity, which is manifested in the fact that in industries with relatively low debt ratios, debt ratios have a restraining effect on productivity, while in industries with relatively high debt ratios, debt ratios have a promoting effect on productivity. The channels of the effect of liabilities on productivity in China’s industrial sector can be summarized as “interest cost burden” channel with restraining effect and “fixed assets investment” channel with promoting effect. The offset effect of the positive and negative effects of these two channels is the internal mechanism that leads to the U-shaped relationship between liabilities and productivity in China’s industrial sector.


JEL:D24

【KeyWords】
China’s Industrial Sector, Debt Ratio, Productivity, U-shaped Relationship, Interest Cost Burden Channel, Fixed Assets Investment Channel