Does Urban Agglomeration Discourage Entrepreneurship in China? Micro-Empirical Evidence from China

Wan Li, Bindong Sun (), Shuaishuai Han and Xiaoxi Jin
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Wan Li: Business School, Zhengzhou University, Zhengzhou 450001, China
Bindong Sun: Research Center for China Administrative Division, Institute of Eco-Chongming, Future City Lab, The Center for Modern Chinese City Studies, School of Urban and Regional Science, East China Normal University, Shanghai 200241, China
Shuaishuai Han: Key Research Institute of Yellow River Civilization and Sustainable Development & Collaborative Innovation Center of Yellow River Civilization Provincial Co-construction, Henan University, Kaifeng 475001, China
Xiaoxi Jin: School of Urban and Regional Science, East China Normal University, Shanghai 200241, China

Land, 2023, vol. 12, issue 1, 1-14

Abstract: As the net effect of agglomeration on entrepreneurship depends on the trade-off between positive and negative effects, urban agglomeration can either promote or discourage entrepreneurial activity in theory. However, there is an unexpected shortage of empirical confirmations on this potential cause-and-effect relationship. Our study strives to fill this empirical gap by providing credible evidence whether agglomeration, measured by the urban density or population, increases the probability of individuals being self-employed. Based on the China Labor-Force Dynamic Survey of 2012, 2014, and 2016, we find that big cities fail to facilitate individuals to start or run their own businesses. Further analyses illustrate that the entrepreneurs in large cities can be easily tempted by a wider range of salaried opportunities and are generally exposed to high fixed costs and intense competition. In contrast, entrepreneurship in large cities is of high reward. These results serve as direct evidence of the co-existence of agglomeration diseconomies and economies. This also suggests the direction of government policy in large cities, which is to alleviate, as much as possible, the negative impact on entrepreneurs.

Keywords: agglomeration economies; agglomeration diseconomies; entrepreneurship; self-employment; agglomeration cost (search for similar items in EconPapers)
JEL-codes: Q15 Q2 Q24 Q28 Q5 R14 R52 (search for similar items in EconPapers)
Date: 2023
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