Working Paper: NBER ID: w18868
Authors: Manuel Adelino; Antoinette Schoar; Felipe Severino
Abstract: This paper documents the role of the collateral lending channel to facilitate small business starts and self-employment in the period before the financial crisis of 2008. We document that between 2002 and 2007 areas with a bigger run up in house prices experienced a strong increase in employment in small businesses compared to employment in large firms in the same industries. This increase in small business employment was particularly pronounced in (1) industries that need little startup capital and can thus more easily be financed out of increases in housing as collateral; (2) manufacturing industries where goods are shipped over long distances, which rules out that local demand is driving the expansion. We show that this effect is separate from an aggregate demand channel that relies on home equity based borrowing leading to increased demand and employment creation.
Keywords: House Prices; Collateral; Self-Employment; Small Business
JEL Codes: E24; G01; G30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| house prices (R31) | small business creation (M13) |
| house prices (R31) | small business employment (M13) |
| house prices (R31) | small business starts (M13) |
| low elasticity areas (H30) | small business employment (M13) |
| collateral lending channel (G21) | small business creation (M13) |
| collateral lending channel (G21) | small business employment (M13) |
| house prices (R31) | large firms employment (L25) |