Abstract
Abstract The influence of a household’s political background on entrepreneurship has attracted considerable attention and is particularly popular in developing countries. However, few empirical papers have investigated the interaction between the political background of households and institutional environments and entrepreneurship. We address the gap by firstly analysing two sets of nationwide survey data, the China Family Panel Studies (CFPS) from 2010 to 2012 and the China Household Finance Survey (CHFS) from 2011 to 2013. After controlling for a number of demographic characteristics, we find that in regions with large local governments and more political intervention, households who have a family member with a political background are more likely to engage in entrepreneurship. Furthermore, because of the effects of the anti-corruption campaign after 2012, the advantages of having a political background for becoming an entrepreneur have, on average, declined, especially in regions with large local governments.
Highlights
Over the last few decades, many empirical papers have investigated which factors have influences on entrepreneurship (Hurst and Lusardi, 2004; Djankov et al, 2006; Buera, 2008; Quadrini, 2009)
Our main hypothesis is that with higher levels of local government power, households with a political background are more likely to engage in entrepreneurship than households without a political background
We define local government size LGSkt as the average share of fiscal spending in GDP in province k during the time interval t de-meaned from the sample mean. α1 can be interpreted as the effect of households with a political background on entrepreneurship at the mean value of local government size
Summary
Over the last few decades, many empirical papers have investigated which factors have influences on entrepreneurship (Hurst and Lusardi, 2004; Djankov et al, 2006; Buera, 2008; Quadrini, 2009). Some papers found that social networks are helpful for individuals and households that use their own networks to engage in entrepreneurship (Hoang and Antoncic, 2003). One type of social network, has been found to have positive personal and business benefits in both developed and developing countries.. Xu et al (2013) find that the political background of family firms can reduce their sensitivity to investment cash flow. In terms of personal benefits, Li et al (2012) find that there is a wage premium of 15% for having parents with a cadre background and that this premium can be the true wage premium of having cadre parents. There has been scarce empirical research about the effects of political background on household entrepreneurship in the Chinese economy in regions with different sizes of local government.
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