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Does real estate bubble affect corporate innovation? Evidence from China
Chen Wang1, Xiaowei Ma1, Hyoungsuk Lee2
1School of Economics, Fujian Normal University, Fuzhou, China.
Plos One
|September 10, 2021
Summary
China's property market bubble negatively impacts corporate R&D investment, hindering economic transformation. This research highlights the "capital relocation effect" over "credit mitigation," leading to a "low-tech lock-in" state for industrial firms.
Area of Science:
- Economics
- Financial Markets
- Industrial Economics
Background:
- China's economic transformation faces downward pressure, with the property market's stability significantly influencing enterprise R&D investment.
- The real estate sector is a critical component of economic restructuring, with potential implications for innovation and long-term growth.
- Understanding the interplay between property market dynamics and corporate investment is crucial for sustainable economic development.
Purpose of the Study:
- To accurately measure China's real estate bubble level using a novel combination measurement model based on closeness degree.
- To empirically investigate the dynamic relationship between the real estate bubble, corporate liquidity, and R&D investment in Chinese industrial enterprises.
- To analyze the impact of the real estate bubble on enterprise R&D investment and its implications for technological upgrading.
Main Methods:
- Utilized data from Chinese large and medium-sized industrial enterprises spanning 1998 to 2015.
- Developed and applied a new combination measurement model based on closeness degree to assess the real estate bubble.
- Employed Structural Vector Autoregressive (SVAR) theory to analyze the dynamic interrelationships.
Main Results:
- The real estate bubble level in China shows an increasing trend, with future risks of deviating from a safe interval.
- The expansion of the real estate bubble exerts a continuous negative influence on corporate R&D investment.
- The
- capital relocation effect
- outweighs the
- credit mitigation effect
- , pushing industrial enterprises into a
- low-tech lock-in
- state.
Conclusions:
- The escalating real estate bubble in China poses a threat to corporate R&D investment and technological advancement.
- The observed
- low-tech lock-in
- phenomenon impedes enterprise transformation and upgradation.
- The current real estate bubble trend is detrimental to China's long-term economic growth and industrial upgrading.
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