The collateral channel: Dynamic effects of housing market on entrepreneurship

This paper examines whether and how housing market prices affect entrepreneurship activities. To this end, we empirically test the hypothetical collateral channel, exploiting a large-scale household-level survey from China. We find that a higher growth rate of house prices is associated with a higher propensity of being self-employed of a family member. We further find that lower house price volatility and higher liquidity in the real estate market boost entrepreneurial choices by households. Overall, the results provide favorable empirical evidence for the collateral channel. •We use a large-scale household-level survey from China to test the collateral channel.•This paper is the first empirical paper relating house price volatility and liquidity in the real estate market with entrepreneurial activities.•Lower house price volatility and higher liquidity in the real estate market are associated with more entrepreneurial decisions by households.