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Overheated Investment in Real Estate Inhibits Innovation: Veriﬁcation and Analysis in China’s Case
Zhang Jie , Yang Lianxing and Xin Fu
Institute of China’s Economic Reform & Development, Renmin University of China, Beijing, China
School of Economics, Renmin University of China
Business School of Hohai University, Nanjing, China
Abstract: Whether rapid real estate investment growth inhibits China’s innovation is a
critical question for China’s economic sustainability. Based on China’s provincial panel
data and using land supply as an instrumental variable for real estate investment growth,
we arrived at the following ﬁndings after effectively controlling endogenous factors that
could lead to estimation errors. First of all, the faster real estate investment grows in
a province, the lower the growth rates of innovation and R&D spending and invention
patent authorizations will be in the province, an indication that real estate directly inhibits
innovation in China. Such inhibition is particularly pronounced in the industrial sectors.
Secondly, in the context of rampant real estate investment, the biased loan maturity structure
of China’s ﬁnancial system in favor of the real estate industry further inhibits innovation.
This paper has veriﬁed the existence of the direct effect of real estate investment growth
on regional innovation and its indirect effect on regional innovation through the biased
long maturity structure of the ﬁnancial system. The empirical ﬁndings of this paper provide
practical policy implications for China to strike a balance between real estate development
and an innovation-driven development strategy.
Keffeecytwords: real estate investment growth, innovation, loan maturity structure, inhibition
JEL Classiﬁcation Codes: E44, O32, L74