Land Tenure Reforms, Entrepreneurial Talent Allocation, and Structural Change: Evidence from Twentieth-Century China

Entrepreneurial talent is a key driver of modern economic growth. However, when individuals with entrepreneurial capabilities preferred to preserve their wealth in land, as was typical in preindustrial societies, rather than invest in reproducible capital, structural transformation would stall due to talent misallocation. In this context, land reforms restricting private landholdings can stimulate structural change by redirecting entrepreneurial talent toward modern sectors. Drawing on shifts in land tenure systems in modern China and individual life-span data, we found that before the mid-twentieth-century land reform, landlord families worked significantly less and showed limited interest in nonagricultural activities, despite their inherent entrepreneurial advantage. However, after the introduction of the household responsibility system in the late 1970s, which allowed rural residents the freedom to choose their occupations within an egalitarian land tenure system, landlord descendants were more likely to establish modern enterprises than other rural groups. Furthermore, landlord descendants primarily benefited from family mentoring rather than financial support when starting businesses, underscoring the intergenerational transmission of entrepreneurial talent.