More but not better: Career incentives of local leaders and entrepreneurial entry in China

Chuantao Cui and Leona Shao-Zhi Li ()
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Chuantao Cui: Bay Area International Business School, Beijing Normal University

No 202417, Working Papers from University of Macau, Faculty of Business Administration

Abstract: This study explores how local leaders’ career incentives influence entrepreneurial activity in China. We identify a positive relationship between high-incentive leaders and the entry rate of new manufacturing firms, facilitated by access to capital and land and the implementation of place-based policies. However, firms that enter the market under high-incentive leaders tend to experience lower productivity growth and lower survivability, highlighting a quantity–quality trade-off. This quality deficit is linked to a mismatch between the types of new entrants and local economic fundamentals. Additionally, the responsiveness of manufacturing exit rates, productivity growth of existing manufacturers, and service firm dynamics to leader incentives appears minimal. Overall, by illuminating both the advantages and limitations of second-best institutions through the lens of firm entry, our study provides new insights into the institutions–growth nexus and offers a cohesive framework for understanding the growth and slowdown of the Chinese economy.

Keywords: Informal institution; career incentives; economic growth; firm dynamics; entrepreneurship (search for similar items in EconPapers)
JEL-codes: H70 L26 O43 P35 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2024-08
New Economics Papers: this item is included in nep-bec, nep-cna, nep-ent and nep-sbm
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