Harald Hau, Difei Ouyang, 26 October 2018

In the new century, China’s large economy features many local real estate booms originating in insufficient land supply. Using a panel of 900,000 Chinese manufacturing firm-year observations with matched firm locations, this column quantifies the causal effects of local real estate booms on local firms. It demonstrates how the diversion of local savings into the real estate sector in cities with real estate booms exerts a large toll on other local industries through higher costs of capital, underinvestment, real wage decreases, and industrial decline.

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