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How Does Owning a Dwelling Affect Economic Growth? An Analysis of Homeownership Rate and GDP Growth for Regions of Russia

Student: Pavel Kim

Supervisor: Nikolay Pilnik

Faculty: Faculty of Economic Sciences

Educational Programme: Applied Economics (Master)

Year of Graduation: 2020

After 70 years of the Communist rule that condemned the private homeownership (HOR), the mass privatization carried out in the early 1990s - early 2000s led virtually overnight to the emergence of a broad class of homeowners in Russian Federation. The homeownership rates changed dramatically over the last two decades, from 26.4% in 1990 to 87.1% in late 2010s. This dramatic change brought about by privatization was further supplemented by the emergence of mortgage market in 2000's. But such an increase had its negative effects as well, such as increased unemployment rate, lower fertility rates and lower entrepreneurial activity. Although the effect of homeownership on these significant macroeconomic measures is well documented, no study tries to link it to the economic growth in general, hence that is this paper's main goal. We work with a panel of 78 regions of Russian Federation over 16 years (2003-2018) employing panel and instrumental variable approaches. The estimation mechanism we employ is a multi stage one, tracking the direct influence of homeownership on GRP in the first stage, capturing the indirect effects brought about by variables affected by homeownership (unemployment rate, birth rate, small entrepreneurship and education levels) on second and third stages and uncovering the pure relationship between HOR and its affected variables and GRP on stage four through the IV. The overall conclusion of our study being that a 1% increase in regional homeownership brings with it a 1.19% decrease in GRP over the next ten years, of which 0.79% is a direct immediate influence of HOR and 0.4% is an indirect long-term influence through changes in unemployment rate, birth rate and small entrepreneurship.

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