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The effect of soaring housing prices on the quality of export products: Evidence from China

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  • Yousen Jin
  • Haitao Mao
  • Sam Hak Kan Tang

Abstract

This paper examines the impact of rising housing prices on the quality of export products. When housing prices increase, the collateral value of firms can rise, easing financial constraints and potentially boosting investment in innovation and product quality. However, higher housing prices can also lead firms to divert investments from their core business operations to the housing sector, where returns are relatively higher. This diversion can negatively affect product quality. We empirically investigate this relationship using Chinese firm‐level data, matched with customs and city‐level data from 2000 to 2013. Our results show that during China's housing boom, rising housing prices significantly reduced the quality of export products. The negative impact of speculative investment in the housing sector outweighed the positive effects of eased credit constraints. Firms with real estate investments and industries with low external financial dependence were more affected by rising housing prices. Additionally, government restrictions on home purchases helped mitigate the negative impact of rising housing prices on export product quality.

Suggested Citation

  • Yousen Jin & Haitao Mao & Sam Hak Kan Tang, 2024. "The effect of soaring housing prices on the quality of export products: Evidence from China," The World Economy, Wiley Blackwell, vol. 47(12), pages 4516-4546, December.
    • Handle: RePEc:bla:worlde:v:47:y:2024:i:12:p:4516-4546
    DOI: 10.1111/twec.13640
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