How Real Estate Booms Hurt Small Firms: Evidence on Investment Substitution

73 Pages Posted: 9 May 2018 Last revised: 11 Jun 2020

See all articles by Harald Hau

Harald Hau

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Difei Ouyang

University of Geneva - Geneva School of Economics and Management

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Date Written: May 2, 2018

Abstract

In geographically segmented credit markets, local real estate booms can deteriorate the funding conditions for small manufacturing firms and undermine their growth and competitiveness. Based on exogenous variations in the administrative land supply across 202 Chinese cities, we show that real estate price hikes caused by a restrictive land supply reduce bank credit to small firms, increase their borrowing costs, diminish their investment rate and compromise their output and productivity growth. Based on matched firm and product-level export data, we are able to discard local demand effects as an alternative explanations to the credit supply channel.

Keywords: Factor price externalities, real estate booms, firm growth, financial constraints

JEL Classification: D22, D24, R31

Suggested Citation

Hau, Harald and Ouyang, Difei, How Real Estate Booms Hurt Small Firms: Evidence on Investment Substitution (May 2, 2018). Swiss Finance Institute Research Paper No. 18-38, Available at SSRN: https://ssrn.com/abstract=3174761 or http://dx.doi.org/10.2139/ssrn.3174761

Harald Hau (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute

Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Difei Ouyang

University of Geneva - Geneva School of Economics and Management ( email )

Bd du Pont d'Arve 42
Genève, GA CH - 1211
Switzerland
+41789451656 (Phone)

HOME PAGE: http://sites.google.com/site/ouyangdifei/research

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