Innovation, regional growth, and housing price: Does housing price affect local innovation?

Abstract

In this study, we examine the effect of regional innovation, a number of patents as a proxy of innovation, on regional growth in South Korea. We focus on the relative causal effect of local housing prices on regional growth and regional innovation. Utilizing economic data and housing price data from a total of 17 regions from the year 2012 to 2021, we adopt the 2 Stage Least Squared (2SLS) method to overcome the issue of endogeneity of variables for our regional growth model and housing price model while controlling home price appreciation and regional specific characteristics. Our findings reveal that while innovation significantly positively affects regional growth which is consistent with previous literature, the housing price does not affect regional innovation. The result implies that regional innovation is critical to regional growth. A 1% increase in patents increases Gross Regional Domestic Product per capita by 0.182%. Innovation has a positive impact on the housing market, a 1% increase in patent increases leads to an increase in 0.525% of housing price. But the housing price index does not show a significant effect on innovative activity.