The persistence of China’s great famine on individuals’ choice to pursue self-employment

Abstract

Self-employment is a field of special importance to developing countries in view of its positive role on socio-economic development. This study exploits a unique nationally representative database using the 1949–1985 China Demographic Data, the 2016 China Labour Force Dynamic Survey, and the 1959–1999 China Drought Disaster Data. Through a difference-in-differences estimation, we reveal that the Great Chinese Famine bear significantly upon individuals’ self-employment decisions. Specifically, a 1% increase in famine intensity results in a 3.89% and 2.31% decrease in the probability of self-employment and self-employed entrepreneurs entering the agricultural sector, respectively. Using rainfall as an instrument, we further show that the documented relationship is causal. Overall, we provide strong empirical evidence that famine exposure significantly affects one’s self-employment decisions, and can help design policies aiming to promote self-employment and the development of small businesses.