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Analysis of the effect of financial development on private debt levels in select European countries – Is financial development alone to be blamed for the rising household debt?

  • In the past decade the world saw an unprecedented economic boom followed by a similar bust. Most economies are still recovering and some experiencing sluggish growth. Various reasons have surfaced as to the cause of this economic boom. However, this paper explores the build-up of excessive debt as a result of financial development in spurring up the economy. This paper identified that the financial deepening coupled with other macro-economic factors have expanded credit in the economy. All sectors accumulated high levels of debt. As part of this study, an analysis of household debt was carried out, using a dataset of 30 European countries in order to ascertain determinants of debt. The results showed that household debt has a statistically significant positive correlation with Gross Domestic Production per capita and Life Expectancy at Birth. Additionally, Gross Savings and Gross Domestic Savings also had a positive correlation. This paper concludes by submitting that financial development should be reset to what it was best at doing in the first place, that is intermediation of finance so that efficiency of investment can be improved. Hence economic development.

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Author:Gayan Samarajeewa
Advisor:Marc Peter Radke
Document Type:Master's Thesis
Year of Completion:2020
Granting Institution:Hochschule Furtwangen
Date of final exam:2020/02/29
Release Date:2020/03/05
Tag:Debt overhang; Economic development; Financialisation; Household debt
Degree Program:MBA - International Business Management
Functional area:Economics
Licence (German):License LogoUrheberrechtlich geschützt