Does real estate bubble affect corporate innovation? Evidence from China.

Chen Wang,Xiaowei Ma,Hyoungsuk Lee,Zhen Chu,Giray Gozgor

doi:10.1371/journal.pone.0257106

Chen Wang, Xiaowei Ma + Show 3 more

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https://doi.org/10.1371/journal.pone.0257106

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Abstract

With the rapid increase of downward pressure on China’s economy, the stability of the property market, as an important part of the economic transformation process, also has a far-reaching impact on enterprises’ R&D investment. We select the data of Chinese large and medium-sized industrial enterprises from 1998 to 2015 as our research sample and propose a new combination measurement model based on closeness degree to measure the real estate bubble level in China accurately. The structural vector autoregressive (SVAR) theory is utilized to empirically test the dynamic relationship between the real estate bubble, corporate liquidity, and R&D investment. The results indicate that the real estate bubble level in China is increasing, and a certain risk of deviating from the safety interval in the future exists; The rapid expansion of the real estate bubble has a continuing negative impact on corporate R&D investment, that is, its "credit mitigation effect" is much smaller than the "capital relocation effect," and industrial enterprises will fall into the so-called "low-tech lock-in" state. In other words, to a certain extent, the development of this kind of real estate bubble will not be conducive to the transformation and upgradation of enterprises and long-term economic growth.

Highlights

Since the reform and opening-up, China’s economy has grown rapidly at an average annual rate of nearly 10%, creating a "growth miracle" that has attracted global attention
The following two basic conclusions have been reached: (1) from 1998 to 2015, Chinese property market was operating at a relative safety interval, its bubble level showed a trend of continuous expansion
In the few years, the real estate bubble in China will be at risk of further increase and deviation from the safety interval

Summary

Introduction

Since the reform and opening-up, China’s economy has grown rapidly at an average annual rate of nearly 10%, creating a "growth miracle" that has attracted global attention. By establishing a two-sector endogenous economic growth model, Shi et al [25] found that the asset sector with bubbles would attract the entity production sector with financing constraints, thereby reducing R&D investment driven by cross-industry arbitrage motivation (i.e., the "capital reallocation effect" of the real estate bubble). If this type of bubble sector does not have technology spillover effects (such as the real estate industry), this "capital reallocation effect" will negatively impact economic development.

Methodology

Findings

Conclusions and implications