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The relationship between credit constraints and household entrepreneurship in China

Author

Listed:
  • Cai, Dongliang
  • Song, Quanyun
  • Ma, Shuang
  • Dong, Yang
  • Xu, Qiuhua

Abstract

This paper evaluates the impact of credit constraint on entrepreneurship by utilizing 2011 China Household Finance and Survey micro-data. We measure household credit constraint directly and use the LPM model to estimate the impact of credit constraint on entrepreneurship. We employ predetermined credit constraint, quasi-experiment, and instrumental variable to eliminate the possible endogeneity problem. Empirical estimates show that credit constraint significantly decreases the probabilities of households to start businesses by around 3 percentage points in general. Further analysis shows that credit constraint significantly decreases the propensity of households to entry into enterprise operation, while it has no significant impact on small handicraft operation.

Suggested Citation

  • Cai, Dongliang & Song, Quanyun & Ma, Shuang & Dong, Yang & Xu, Qiuhua, 2018. "The relationship between credit constraints and household entrepreneurship in China," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 246-258.
    • Handle: RePEc:eee:reveco:v:58:y:2018:i:c:p:246-258
    DOI: 10.1016/j.iref.2018.03.024
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • R29 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Other

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