How can entrepreneurship be fostered? Evidence from provincial‐level panel data in China

Abstract

AbstractIn this study based on evolutionary game theory and data on conditions in China, we determine the main factors affecting business entrepreneurship and innovation entrepreneurship. We consider internal and external perspectives regarding entrepreneurship–institutional quality and foreign direct investment (FDI). Accordingly, we find that institutional quality has a positive effect on nurturing entrepreneurship, especially business entrepreneurship, and FDI does not effectively stimulate entrepreneurship, particularly innovation entrepreneurship. With regard to spatial heterogeneity, in different regions, institutional quality and FDI have diverse effects on fostering entrepreneurship. According to the trend analysis, we find that the relationship between FDI and entrepreneurship takes an inverted‐U shape, in contrast to the relationship between most types of institutional quality and entrepreneurship. When FDI and institutional quality jointly cultivate entrepreneurship, the interaction between them is not effective. Moreover, we find that institutional quality affects entrepreneurship mostly through the channels of economic growth, the scale of the home market, and industrial upgrading. By contrast, FDI does not effectively affect these channels to further foster entrepreneurship. These conclusions not only enrich the literature on entrepreneurship but also offer insights into how entrepreneurship can be stimulated in China and the rest of the world.