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The Interaction between Housing Investment and Economic Growth in China

Abstract

The importance of housing investment in the national economy and its rapid growth have become distinct characteristics of the Chinese economy in recent years. However, at the same time, there is a concern that the economic growth heavily dependent on housing investment may compromise the stability and the health of the national economy. Using Granger causality analysis, this paper examines the interaction between housing investment and economic growth as well as that between non-housing investment and economic growth. We find evidence that housing investment has a stronger short run effect on economic growth than non-housing investment. We also find that housing investment has a long run effect on economic growth while economic growth has a log run effect on both housing and non-housing investment. Our findings suggest that housing investment is an important factor for the short-term fluctuations of economic growth, with its growth stimulating the economic growth and its slumps leading to downside fluctuations.

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Article provided by Asian Real Estate Society in its journal International Real Estate Review.

Volume (Year): 5 (2002)
Issue (Month): 1 ()
Pages: 40-60

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Handle: RePEc:ire:issued:v:05:n:01:2002:p:40_60
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Asia Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA

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Keywords: Economic growth; housing investment; non-housing investment; Granger causality; cointegration; error correction model;

Find related papers by JEL classification:

  • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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  1. Toda, Hiro Y & Phillips, Peter C B, 1993. "Vector Autoregressions and Causality," Econometrica, Econometric Society, vol. 61(6), pages 1367-1393, November.
  2. Brito, Paulo M. B. & Pereira, Alfredo M., 2002. "Housing and Endogenous Long-Term Growth," Journal of Urban Economics, Elsevier, vol. 51(2), pages 246-271, March.
  3. Fang, Cheng & Zhang, Xiaobo & Fan, Shenggen, 2002. "Emergence of urban poverty and inequality in China: evidence from household survey," China Economic Review, Elsevier, vol. 13(4), pages 430-443, December.
  4. Neely, Christopher J. & Weller, Paul, 2000. "Predictability in International Asset Returns: A Reexamination," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(04), pages 601-620, December.
  5. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
  6. Braid, Ralph M., 2001. "Spatial Growth and Redevelopment with Perfect Foresight and Durable Housing," Journal of Urban Economics, Elsevier, vol. 49(3), pages 425-452, May.
  7. Liu Hongyu, 1998. "Government Intervention and Performance of the Housing Sector in Urban China," International Real Estate Review, Asian Real Estate Society, vol. 1(1), pages 127-149.
  8. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
  9. Zhang, Wei-Bin, 1994. "Capital, population and urban patterns," Regional Science and Urban Economics, Elsevier, vol. 24(2), pages 273-286, April.
  10. Yi Wen, 2001. "Residential Investment and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 2(2), pages 437-444, November.
  11. Richard K. Green, 1997. "Follow the Leader: How Changes in Residential and Non-residential Investment Predict Changes in GDP," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 25(2), pages 253-270.
  12. Charles Ka Yui Leung, 2003. "Economic Growth And Increasing House Prices," Pacific Economic Review, Wiley Blackwell, vol. 8(2), pages 183-190, 06.
  13. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
  14. Hiro Y. Toda & Peter C.B. Phillips, 1991. "Vector Autoregression and Causality: A Theoretical Overview and Simulation Study," Cowles Foundation Discussion Papers 1001, Cowles Foundation for Research in Economics, Yale University.
  15. Madsen, Jakob B., 2002. "The causality between investment and economic growth," Economics Letters, Elsevier, vol. 74(2), pages 157-163, January.
  16. N. Edward Coulson & Myeong-Soo Kim, 2000. "Residential Investment, Non-residential Investment and GDP," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(2), pages 233-247.
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Cited by:

  1. Honghao Ren & Henk Folmer & Arno Vlist, 2014. "What role does the real estate–construction sector play in China’s regional economy?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(3), pages 839-857, May.
  2. Steven A Barnett & Ray Brooks, 2006. "What’s Driving Investment in China?," IMF Working Papers 06/265, International Monetary Fund.
  3. Erol, Isil & Unal, Umut, 2015. "Role of Construction Sector in Economic Growth: New Evidence from Turkey," MPRA Paper 68263, University Library of Munich, Germany.
  4. Wensheng Peng & Dickson C. Tam & Matthew S. Yiu, 2007. "The Property Market and the Macroeconomy of the Mainland: A Cross Region Study," Working Papers 052007, Hong Kong Institute for Monetary Research.
  5. Michael, Bryane & Zhao, Simon, 2016. "Bubble Economics How Big a Shock to China’s Real Estate Sector Will Throw the Country into Recession, and Why Does It Matter?," EconStor Preprints 141314, ZBW - German National Library of Economics.
  6. Xiaolong Liu & Weidong Qu, 2015. "Winner's Curse or Signaling? Bidding Outcomes in the Chinese Land Market," International Real Estate Review, Asian Real Estate Society, vol. 18(1), pages 113-129.
  7. Kazuya Tani & Yoshiyuki Kikuchi & Hideo Takaoka & Shubin Lin, 2014. "Housing Acquisition Process for Public Housing and Commodity Housing in Shanghai: A Survey of Residents," International Real Estate Review, Asian Real Estate Society, vol. 17(3), pages 415-444.
  8. Zhang, Yanbing & Hua, Xiuping & Zhao, Liang, 2011. "Monetary policy and housing prices : a case study of Chinese experience in 1999-2010," BOFIT Discussion Papers 17/2011, Bank of Finland, Institute for Economies in Transition.
  9. Liu, Chunping & Ou, Zhirong, 2017. "What determines China's housing price dynamics? New evidence from a DSGE-VAR," Cardiff Economics Working Papers E2017/4, Cardiff University, Cardiff Business School, Economics Section.
  10. Christian Dreger & Yanqun Zhang, 2010. "Is There a Bubble in the Chinese Housing Market?," Discussion Papers of DIW Berlin 1081, DIW Berlin, German Institute for Economic Research.

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