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Can real estate booms hurt firms? Evidence on investment substitution

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  • Hau, Harald
  • Ouyang, Difei

Abstract

In geographically segmented credit markets, local real estate booms can deteriorate the funding conditions for small manufacturing firms and undermine their growth and competitiveness. Based on exogenous variations in the administrative land supply for residential housing across Chinese cities, we show that real estate price hikes caused by a restrictive land supply reduce bank credit to manufacturing firms, raise their borrowing costs, diminish their investment rate, compromise their output and productivity growth, and increase their exit rates. Such harmful effects are more pronounced among small firms and those located in more bank-dependent regions.

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  • Hau, Harald & Ouyang, Difei, 2024. "Can real estate booms hurt firms? Evidence on investment substitution," Journal of Urban Economics, Elsevier, vol. 144(C).
    • Handle: RePEc:eee:juecon:v:144:y:2024:i:c:s0094119024000652
    DOI: 10.1016/j.jue.2024.103695
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    More about this item

    Keywords

    Factor price externalities; Real estate booms; Firm growth; Financial constraints;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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