Entrepreneurship, Institutions, and Regional Development: Evidence from China’s Economic Transition, 1978-2017

Abstract

Using a panel of China’s 31 provinces over 1978-2017, we examine the effects of entrepreneurship on economic growth in the context of China’s transformation from a centrally planned to a market-oriented economy. We divide entrepreneurship into two types: business creation and innovation. Our panel data estimation results show that both types of entrepreneurship have significantly positive effects on growth rate of China’s GDP per capita over the sample period. Specifically, annual growth rate of GDP per capita will increase by 1.625 percentage points if business creation entrepreneurship increases by ten percentage points. Innovation has a lag impact on economic growth. Annual economic growth rate will increase by 0.188 percentage points if innovation in the last period increases by ten percent. The results are robust even when we control for different sets of independent variables. China’s transition and development experience show that a strong government does not conflict with the role of entrepreneurs and free markets. JEL Classification: L26, O15, O53