## Private-Sector Financial Liabilities in Advanced Economies: Is More Better?

_IMF Working Papers, May 1, 2007_

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## Bibliographic details
- Authors: Man-Keung Tang
- Published: May 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451866827.001

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### Summary and main findings
- Advanced economies have experienced diverse developments in accumulation of financial liabilities by their household and corporate sectors since around 1995.
- Cross-country–industry evidence indicates that:
  - The type of the financial system and the degree of labor market flexibility matter for the economic impact of expanded borrowings.
  - In countries with a more arm's length–based financial system and less rigid labor market, faster creation of corporate liabilities in recent years appears to have:
    - Spurred growth of industries more reliant on external finance.
    - Strengthened the development of growing industries.
- The findings suggest an association of recent increases in corporate borrowings with:
  - A reduction in costs of external finance.
  - An improvement in resource allocation — two supposed channels through which finance facilitates growth.

### Policy-relevant implications and channels
- Financial system structure matters: arm's length–based systems appear to amplify the positive growth effects of corporate borrowing in certain contexts.
- Labor market flexibility interacts with financial deepening: less rigid labor markets are associated with stronger positive outcomes from expanded corporate liabilities.
- Mechanisms highlighted:
  - Cost of external finance: increases in corporate borrowings associated with reduction in costs.
  - Resource allocation: increased corporate borrowings associated with improvements in resource allocation across industries.

### Publication and metadata
- Author: Man-Keung Tang
- Date: May 1, 2007
- Series: Working Paper No. 2007/118
- Issue: 118
- Volume: 2007
- Pages: 30
- DOI: https://doi.org/10.5089/9781451866827.001
- Stock No: WPIEA2007118
- ISBN: 9781451866827
- ISSN: 1018-5941

### Subjects and keywords
- Subject: Financial sector development, Labor market flexibility, Labor markets, Productivity, Real interest rates
- Keywords: external finance, financial system, GDP, labor market, WP

*Source: Man-Keung Tang, "Private-Sector Financial Liabilities in Advanced Economies: Is More Better?", IMF Working Papers 2007, 118 (May 1, 2007).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/private-sector-financial-liabilities-in-advanced-economies-is-more-better-20941_