Collateral, Reallocation, and Aggregate Productivity: Evidence from the U.S. Housing Boom
Sebastian Doerr
MPRA Paper from University Library of Munich, Germany
Abstract:
This paper shows that rising real estate prices reduce industry productivity, because they lead to a reallocation of capital and labor towards inefficient firms. I establish that the rise in real estate value during the US housing boom relaxes firms’ financial constraints. Companies borrow additional funds to invest, hire labor, and increase output. However, firms holding real estate are significantly less productive than non-holders. Rising real estate prices thus reallocate capital and labor towards inefficient firms. This has significant negative consequences for aggregate industry productivity. I find that industries with stronger growth in real estate value see a significant reduction in total factor productivity growth. A 10% increase in real estate value lowers TFP growth by 0.62%. The negative effect is driven by misallocation. To shed light on the role of financial sector, I show that banks with superior information about borrowers are better at identifying productive borrowers and supply less credit to unproductive firms when collateral values rise. My results provide direct evidence that financial frictions drive misallocation and suggest a channel for reallocation’s falling contribution to growth in recent years.
Keywords: collateral; misallocation; productivity; real estate; housing boom (search for similar items in EconPapers)
JEL-codes: D22 D24 O16 O47 R3 (search for similar items in EconPapers)
Date: 2018-09-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)
Downloads: (external link)
https://mpra.ub.uni-muenchen.de/106163/1/MPRA_paper_106163.pdf original version (application/pdf)
Related works:
Working Paper: Housing booms, reallocation and productivity (2020) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:106163
Access Statistics for this paper
More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().