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Credit accessibility, institutional deficiency and entrepreneurship in China

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  • Ma, Shuang
  • Wu, Xi
  • Gan, Li

Abstract

Using a brand new data, we document seriously low credit accessibility from financial institutes for small and micro enterprises (SMEs) and examine whether and how it affects entrepreneurial activity in China. We find that credit constraints significantly decrease the possibility of households becoming entrepreneurs. Based on our estimates, 10% decrease in the probability of being credit constrained would be associated with 4.3 million newly-created household businesses, or equivalently 11 million jobs. In the end, factors that determine credit accessibility are exploited and the result indicates that institutional deficiency plays a role in shaping the pattern of financing difficulties in China. Specifically, we find households in regions with more commercialized banking or those with government-sector workers are more likely to access to credit when other relevant variables are conditioned. In particular, the positive role of government-sector workers is more pronounced in regions with weaker market institutions.

Suggested Citation

  • Ma, Shuang & Wu, Xi & Gan, Li, 2019. "Credit accessibility, institutional deficiency and entrepreneurship in China," China Economic Review, Elsevier, vol. 54(C), pages 160-175.
    • Handle: RePEc:eee:chieco:v:54:y:2019:i:c:p:160-175
    DOI: 10.1016/j.chieco.2018.10.015
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • P3 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions

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