Can real estate booms hurt firms? Evidence on investment substitution

Harald Hau and Difei Ouyang

Journal of Urban Economics, 2024, vol. 144, issue C

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.

Keywords: Factor price externalities; Real estate booms; Firm growth; Financial constraints (search for similar items in EconPapers)
JEL-codes: D22 D24 R31 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:144:y:2024:i:c:s0094119024000652

DOI: 10.1016/j.jue.2024.103695

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