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Local Effects of Global Capital Flows: A China Shock in the U.S. Housing Market

Author

Listed:
  • Zhimin Li
  • Leslie Sheng Shen
  • Calvin Zhang

Abstract

This paper studies the real effects of foreign real estate capital inflows. Using transaction-level data, we document (i) a “China shock” in the U.S. housing market characterized by surging foreign Chinese housing purchases after 2008, and (ii) “home bias” in these purchases, as they concentrate in neighborhoods historically populated by ethnic Chinese. Exploiting their temporal and spatial variation, we find that these capital inflows raise local employment, with the effect transmitted through a housing net worth channel. However, they displace local lower-income residents. Our results show that real estate capital inflows can both stimulate the real economy and induce gentrification.

Suggested Citation

  • Zhimin Li & Leslie Sheng Shen & Calvin Zhang, 2024. "Local Effects of Global Capital Flows: A China Shock in the U.S. Housing Market," The Review of Financial Studies, Society for Financial Studies, vol. 37(3), pages 761-801.
    • Handle: RePEc:oup:rfinst:v:37:y:2024:i:3:p:761-801.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad067
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    More about this item

    Keywords

    F21; F38; E20; J21; R21;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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