Credit, Land Speculation, and Long-Run Economic Growth

Tomohiro Hirano and Joseph Stiglitz

Papers from arXiv.org

Abstract: This paper presents a model that studies 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 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.

Date: 2024-05
New Economics Papers: this item is included in nep-fdg, nep-gro, nep-mac and nep-ure
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Citations: View citations in EconPapers (1)

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http://arxiv.org/pdf/2405.05901 Latest version (application/pdf)

Related works:
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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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2405.05901

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