Housing Price and Entrepreneurship in China

29 Pages Posted: 8 Sep 2013 Last revised: 26 May 2015

See all articles by Lixing Li

Lixing Li

Peking University - China Center for Economic Research (CCER)

Xiaoyu Wu

Central University of Finance and Economics (CUFE)

Date Written: May 18, 2014

Abstract

Housing price has increased dramatically in China during the past decade. The appreciation of house value could relax credit constraint and thus encourage entrepreneurship. However, a house serves as both an important investment channel and a prerequisite for marriage in China. The continuous high return of investment in housing and intensified marriage market competition make house purchase a priority for young people and their parents, which would crowd out entrepreneurial activities. Using two large datasets, we find that high housing price in general discourages entrepreneurial activities for urban adults. For house owners, while house value appreciation has a positive wealth effect, the ratio of mortgage over income has a negative effect. For non-owners, a higher ratio of housing price over income corresponds to a lower probability of entrepreneurship. This study highlights the negative consequences of surging housing price on entrepreneurship in developing countries.

Keywords: entrepreneurship, real estate market, housing price, credit constraint, China

JEL Classification: J23, R21, O18

Suggested Citation

Li, Lixing and Wu, Xiaoyu, Housing Price and Entrepreneurship in China (May 18, 2014). Journal of Comparative Economics, 42(2), 436-449, 2014. Available at SSRN: https://ssrn.com/abstract=2322013

Lixing Li (Contact Author)

Peking University - China Center for Economic Research (CCER) ( email )

Beijing, 100871
China

Xiaoyu Wu

Central University of Finance and Economics (CUFE) ( email )

Beijing, Beijing
China

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