The Dynamic Relationship between Real Estate Investment and Economic Growth: Evidence from Prefecture City Panel Data in China

This paper employed GMM for the first time to estimate the dynamic relevance between real estate investment and the economic growth based on the panel data of 284 Chinese Prefecture cities from 1994 to 2010. We find that the positive effect of real estate investment on economic growth is stronger in short term while in long term turn to be negative. Therefore housing investment is an important factor for short-term economy fluctuations and lead to downside risk in the long term. The effect of real estate investment also rely on the regional economy development and has periodic characteristics, which is stronger in the eastern region than the midwest region and the negative enduring impact is strengthened after 2004. Furthermore the government expenditure hinder the economy growth and cutting government expenditure and curbing the wind of extravagance by the new leadership in China is proved to be proper.