Air pollution and entrepreneurship: evidence from China

Abstract

ABSTRACT Air pollution has become a major danger to human health and a hindrance to social and economic growth. This study endeavours to examine the impact of air pollution on entrepreneurial activities in China. Using registration data from 2000 to 2018, we find that severe air pollution can decrease the number of newly registered firms by about 36%, suggesting a negative effect on entrepreneurship. To strengthen the causal inference, we adopt the two-stage least square method to address the potential endogenous problems. The result is robust to different model settings and alternative measurements of air pollution. The study further delves into the mechanisms through which air pollution affects entrepreneurial activities, including brain drain, social capital, startup costs, and financial constraints. This study recommends effective environmental regulation policies to improve air quality as well as increase the attraction of mobile factors to alleviate the adverse impacts of air pollution on entrepreneurial activities.