Foreign investments in real estate, economic growth and property prices: evidence from OECD countries

Abstract

The last two decades have witnessed a growth in foreign direct investments (FDI) in the real estate sector in most of the Organization for Economic Co-Operation and Development (OECD) countries. It is argued that FDI in the real estate sector may improve economic growth in recipient economies. On the other hand, property prices have increased considerably in OECD countries in recent years and some argue that FDI in real estate is one of the driving forces of high property prices in these countries. The purpose of this study is to analyze the interrelationship between FDI in the real estate sector, economic growth, and property prices while controlling for interest rate and inflation. We use observations from a set of OECD countries for the period between 1995 and 2008. The dynamic interrelationship is analyzed by applying a panel cointegration technique. Our empirical results show that FDI in real estate do not cause property price appreciations and also do not contribute to economic growth in OECD countries in the short run and the long run.

Keywords:

• real estate sector
• foreign investments
• property prices
• economic growth
• cointegration
• OECD countries

JEL Classifications:

• F41
• F21
• G12

Notes

1. More evidences on the recent surges of FDIRE in OECD economies can be seen in Appendix 1.

2. It should be noted that this data is not exact and precise because some of the OECD countries have not reported the FDIRE data in some years.