Do high housing prices inhibit entrepreneurial activity?—Evidence from Yangtze River Delta cities, China

Abstract

Contrary to the existing literature that suggests the inhibitory or facilitating effect of housing prices on entrepreneurial dynamism, this paper explores the nonlinear effect of housing prices on entrepreneurship and countervailing effect of entrepreneurial dynamism on housing prices, in addition to investigating the spatial interaction between the two. This paper constructs a simultaneous equation model (SEM) to empirically test the interaction and spillover effects between housing prices and entrepreneurial dynamism. The results show that: (1) there is a two-way interaction between housing prices and entrepreneurial dynamism; (2) the estimated coefficients of housing prices and the quadratic square term of housing prices (14.285 and −0.744, respectively) are consistent and significant as expected, indicating an inverted U-shaped effect of housing prices on entrepreneurial dynamism; and (3) in geospatial terms, there are positive spatial spillovers and negative spatial interaction effects for both house prices and entrepreneurial dynamism in Yangtze River Delta cities.