Abstract
Is housing price growth causally linked with information technology (IT) investment among firms? Using establishment data between 1996-2007, we find that a percentage point rise in the growth rate of zipcode-level housing prices is associated with a 0.03-0.08% increase in information technology. Our results are robust to exploiting historical housing price shocks between 1980-1990, which generate housing market momentum between 1996-2007. We show that one major mechanism behind the housing-IT elasticity is the attraction of high skilled workers. We reconcile the internet productivity puzzle — that the adoption of advanced internet is associated with employment growth only in high-wage areas — by showing that the collateral channel is not present in these areas. Even in the presence of housing price growth, firms do not invest in IT when they do not have access to high skilled workers.
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