The role of innovation and entrepreneurship in promoting common prosperity in China: Empirical evidence from a two-way fixed effects model

Common prosperity stands as a pivotal concept and objective within China’s socialism with distinctive characteristics, serving as a fundamental assurance and basis for ensuring its people’s happiness and comprehensive development. This research employs a Coupled Coordination Degree Model to construct a common prosperity Index using data from China between 2010 and 2020. The study investigates the influence of innovation and entrepreneurship on common prosperity while examining the regulating roles played by the government and market during this process. The outcomes demonstrate that innovation substantially facilitates the realization of common prosperity. The relationship between entrepreneurship and common prosperity follows a positive "U"-shaped curve, where entrepreneurship significantly contributes to common prosperity upon reaching a particular scale. Further investigations reveal heterogeneity in the impact of innovation and entrepreneurship on common prosperity. Specifically, innovation significantly contributes to common prosperity in the northern regions, whereas entrepreneurship has a noteworthy impact on common prosperity in the southern regions. Moreover, it is worth noting that both innovation and entrepreneurship have a significant influence on common prosperity in areas characterized by low economic development levels and a scarcity of fixed capital. The fiscal effects of the government attenuate the promoting effect of innovation on common prosperity but enhance the adverse influence of entrepreneurship. On the contrary, market mechanisms mitigate the negative impact of entrepreneurship on common prosperity. Consequently, achieving common prosperity requires strengthened regional innovation cooperation, encouraging advanced regions to lead underdeveloped regions, and leveraging the regulatory roles of both the government and the market, thus progressing gradually towards common prosperity.