House Money and Entrepreneurship

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 21.07.2015, 12:00 - 13:30

   

Presentation by 

William Kerr (Harvard Business School)
   

Abstract:

We examine the relationship between house prices and entrepreneurship using micro data from the US Census Bureau. Increases in house prices are often thought to drive entrepreneurship through unlocking the collateral channel for bank loans, but this interpretation is challenged by worries regarding omitted variable biases (e.g., rising local demand) or wealth effects (i.e., that wealthier people are more likely to enter entrepreneurship for reasons other than access to collateral). We construct an empirical environment that utilizes very localized price changes, exploits variations in initial home values across residents in the same zip code, and embeds multiple comparisons (e.g., owners vs. renters, homestead exemption laws by state). For the United States during the 2000-2004 period, the link of home prices to the rate of entrepreneurship is relatively small in economic magnitude. This is despite a focus on a time period that experienced the largest concentration of US home price growth over the last two decades. While collateral plays a role in the entry that we observe, wealth effects appear to be more important.

   
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