Housing markets’ linkage between China and Taiwan

Purpose - This paper aims to examine the linkage of regional housing markets between Taiwan and China as increasing economic integration. Design/methodology/approach - Two time-varying estimations of cointegration tests, Gregory and Hansen (1996) cointegration test with structural break and the recursive coefficients of cointegration (Hansen and Johansen, 1993) are applied to trace the possible dynamic linkage of cross-border regional housing prices between Taiwan and China. Findings - First, the estimating results of the long-run relationships show that increasing housing prices in Beijing and Shanghai decrease Taipei’s house prices, while Shenzhen and Chengdu have converse effects. The technologies’ levels of Taiwanese industries surrounding the cities in China will affect the direction of the linkage of regional housing prices between the two economies. Second, in light of causalities of these five housing prices’ changes, Beijing and Shanghai lead Taipei and Shanghai leads Chengdu, which, in turn, leads Shenzhen. Finally, the results of time-varying cointegration tests show that some critical economic and political incidents changed the linkages of housing prices between Taipei and the four cities in China. Originality/value - Although some empirical works examined the linkages between cross-border house prices in Europe and the USA, study has looked at the linkages of cross-border housing prices between Taiwan and China. This is an interesting topic insofar as house price integration has implications for wealth effects that feed into consumer expenditure in both Taiwan and China. The empirical evidence overall displays the existence of the integration of regional housing markets between Taiwan and China. For the longer-term future, increasing economic integration between China and other Asia countries will result in greater and more diversified cross-border housing markets and pools of investors.