Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2008:17: The relationship between housing investment and economic growth in China FA panel analysis using quarterly provincial data

Jie Chen () and Aiyong Zhu ()
Additional contact information
Jie Chen: nstitute for Housing and Urban Research, Uppsala University
Aiyong Zhu: Department of Word Economy, Postal: School of Economics, Fudan University, Handan Road 220, Shanghai 200433, China

Abstract: In this paper we investigate the long-run and short-run relationship between housing investment and economic growth in China using the quarterly province-level panel data for the period 1999 q1 to 2007 q4. Recently developed econometric techniques for panel unit root testing and heterogeneous panel cointegration analysis are employed. The empirical results provide clear support of a stable long-run relationship between housing investment, non-housing investment and GDP in China. We then estimate the long-run elasticity of GDP with respect to housing investment for the whole country as well as three sub regions. The variations across regions are detected and reasons for this fact are discussed. Based on the panel ECM, we show that there is bidirectional Granger causality between housing investment and GDP in both short run and long run for the whole country, while the impacts of housing investment on GDP behave strikingly differently in the three sub-regions of China.

Keywords: Housing investment; Economic growth; Panel cointegration; Granger causality

JEL-codes: E22; L74; R31

26 pages, December 2, 2008

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