This paper identifies a new mechanism leading to inefficiency in capital reallocation at the
extensive margin when an economy experiences a sectoral boom. I argue that imperfections
in the financial market and capital barriers to entry in the booming sector create a
misallocation of managerial talent. Using comprehensive firm-level data from China, I first
provide evidence that more productive firms reallocate capital to the booming real estate
sector, and demonstrate that the pattern is likely driven by fewer financial constraints on
these firms. I then use a structural estimation to verify the talent misallocation. Finally, I
calibrate a dynamic model and find that the without the misallocation, the TFP growth in the
manufacturing sector would have improved by 0.5% per year.
There are, by now, several long term, time series data sets on important housing & macro
variables, such as land prices, house prices, and the housing wealth-to-income ratio.
However, an appropriate theory that can be employed to think about such data and associated
research questions has been lacking. We present a new housing & macro model that is
designed specifically to analyze the long term. As an illustrative application, we demonstrate
that the calibrated model replicates, with remarkable accuracy, the historical evolution of
housing wealth (relative to income) after World War II and suggests a further considerable
increase in the future. The model also accounts for the close connection of house prices to
land prices in the data. We also compare our framework to the canonical housing & macro
model, typically employed to analyze business cycles, and highlight the main differences.