House Prices, Collateral and Self-Employment

44 Pages Posted: 9 Mar 2013  

Manuel Adelino

Duke University; Duke Innovation & Entrepreneurship Initiative; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Felipe Severino

Tuck School of Business at Dartmouth

Date Written: March 2013

Abstract

This paper documents the role of the collateral lending channel to facilitate small business starts and self-employment in the period before the financial crisis of 2008. We document that between 2002 and 2007 areas with a bigger run up in house prices experienced a strong increase in employment in small businesses compared to employment in large firms in the same industries. This increase in small business employment was particularly pronounced in (1) industries that need little startup capital and can thus more easily be financed out of increases in housing as collateral; (2) manufacturing industries where goods are shipped over long distances, which rules out that local demand is driving the expansion. We show that this effect is separate from an aggregate demand channel that relies on home equity based borrowing leading to increased demand and employment creation.

Suggested Citation

Adelino, Manuel and Schoar, Antoinette and Severino, Felipe, House Prices, Collateral and Self-Employment (March 2013). NBER Working Paper No. w18868. Available at SSRN: https://ssrn.com/abstract=2230758

Duke Innovation & Entrepreneurship Initiative ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

50 Memorial Drive, E52-447
Cambridge, MA 02142
United States
617-253-3763 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Felipe Severino

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.dartmouth.edu/~fseverino

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