The Housing-led Growth Hypothesis Revisited

Abstract

This paper investigates the relationship between housing investment and economic growth in China, utilising province-level data via recently developed panel unit root tests and panel co-integration analysis. The empirical results suggest a stable long-run relationship between housing investment, non-housing investment and GDP in China. In addition, the existence is demonstrated of bi-directional Granger causality between housing investment and GDP at the national level. The panel error correction model supports the hypothesis that housing investment appears to have a dual role, acting as both a driver and follower in China’s economic fluctuations. However, the impacts of housing investment on economic growth in three sub-regions are found to be strikingly different.