Does financial literacy drive entrepreneurship in rural China?

Abstract

Developing financial literacy is a crucial part of entrepreneurship. It can aid aspiring entrepreneurs to learn how to analyze market trends, formulate business plans, conduct cost accounting activities, and navigate fiscal risks in their businesses. Therefore, we investigated the most recent dataset on rural residents in China to determine the effects of financial literacy on their entrepreneurial behaviors. Our observations reveal that individuals with high financial literacy, that is, those who have attained advanced financial knowledge, are more likely to start a business than those with low financial literacy. We employed instrumental variable analysis to mitigate the endogeneity of financial literacy. Results show a causal relationship between Chinese rural residents’ financial literacy and entrepreneurship. Finally, we demonstrate that the aggressive risk attitudes of rural families magnify the effects of financial literacy on entrepreneurship.