How Real Estate Booms Hurt Small Firms: Evidence on Investment Substitution - new publication by Harald Hau
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 across 202 Chinese cities, GFRI's Professor Harald Hau and his co-author Difei Ouyang show that real estate price hikes caused by a restrictive land supply reduce bank credit to small firms, increase their borrowing costs, diminish their investment rate and compromise their output and productivity growth.
Based on matched firm and product-level export data, they are able to discard local demand effects as an alternative explanations to the credit supply channel.
The paper was published recently in the Journal of Urban Economics.
Oct 18, 2024