Credit, Land Speculation, and Long-Run Economic Growth

Tomohiro Hirano and Joseph Stiglitz

No 32479, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyses the impact of credit expansions arising from increases in collateral values or lower interest rate policies on long-run productivity and economic growth in a two-sector endogenous growth economy with credit frictions, with the driver of growth lying in one sector (manufacturing) but not in the other (real estate). We show that it is not so much aggregate credit expansion that matters for long-run productivity and economic growth but sectoral credit expansions. Credit expansions associated mainly with relaxation of real estate financing (capital investment financing) will be productivity-and growth-retarding (enhancing). Without financial regulations, low interest rates and more expansionary monetary policy may so encourage land speculation using leverage that productive capital investment and economic growth are decreased. Unlike in standard macroeconomic models, in ours, the equilibrium price of land will be finite even if the safe rate of interest is less than the rate of output growth.

JEL-codes: E44 O11 (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
Note: EFG
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Working Paper: Credit, Land Speculation, and Long-Run Economic Growth (2024)
Working Paper: Credit, Land Speculation, and Long-Run Economic Growth (2024)
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