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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Collateral, reallocation, and aggregate productivity: evidence from the U.S. housing boom
Organization Unit
  • Sebastian Klaus Dörr
  • English
Institution University of Zurich
Series Name SSRN
Number 3184162
ISSN 1556-5068
Date 2018
Abstract Text This paper shows that rising real estate prices reduce industry productivity, because they lead to a reallocation of capital and labor towards inefficient firms. I establish that the rise in real estate value during the US housing boom relaxes firms’ financial constraints. Companies borrow additional funds to invest, hire labor, and increase output. However, firms holding real estate are significantly less productive than non-holders. Rising real estate prices thus reallocate capital and labor towards inefficient firms. This has significant negative consequences for aggregate industry productivity. I find that industries with stronger growth in real estate value see a significant reduction in total factor productivity growth. A 10 % increase in real estate value lowers TFP growth by 0.62 %. The negative effect is driven by misallocation. To shed light on the role of financial sector, I show that banks with superior information about borrowers are better at identifying productive borrowers and supply less credit to unproductive firms when collateral values rise. My results provide direct evidence that financial frictions drive misallocation and suggest a channel for reallocation’s falling contribution to growth in recent years.
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Keywords Collateral, misallocation, productivity, real estate, housing boom