Public Policy Environment and Entrepreneurial Activities: Evidence from China

• DOI: http://doi.org/10.1111/cwe.12244
• Author: Yilin Zhang,Sai Lan,Xiang Gao,Qing Wang
• Date: 01 May 2018
• Published date: 01 May 2018

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 88–108, Vol. 26, No. 3, 2018

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*Sai Lan, Assistant Professor, Peking University HSBC Business School, China. Email: sailan@phbs.pku.edu.cn;

Xiang Gao, Associate, CCB Trust, China. Email: gx8600@126.com; Qing Wang (corresponding author),

Assistant Professor, Peking University HSBC Business School, China. Email: qingwang@phbs.pku.edu.cn;

Yilin Zhang, Assistant Professor, Peking University HSBC Business School, China. Email: ylzhang@phbs.

pku.edu.cn. We would like to thank participants at the International Workshop on Entrepreneurship in China

held by Peking University in October 2016 for insightful comments.

Public Policy Environment and Entrepreneurial

Activities: Evidence from China

Sai Lan, Xiang Gao, Qing Wang, Yilin Zhang*

Abstract

What determines the effectiveness of government entrepreneurship policies on the

regional development of entrepreneurial activities in China? Using panel data analysis,

this study develops a comprehensive framework that examines the effects of various

factors, including government efciency and government support for business, nance

and technology, on facilitating the creation of new ventures. Based on provincial data

collected between 2009 and 2014, we nd that the level of infrastructure development,

government incubators and venture capital-guided funds have positive and signicant

effects on entrepreneurial activities. The findings of our study suggest that local

government efficiency is a fundamental precondition for entrepreneurship policies to

effectively boost the regional economy.

Key words: entrepreneurial activity, government efficiency, policy environment,

regional entrepreneurship development

JEL codes: H70, M13, M21

I. Introduction

Entrepreneurship is a key driver of economic growth and national competitiveness

(OECD, 1996; World Bank, 2001; Baumol, 2014). Germany pulled itself out of

economic stagnation and the high unemployment quagmire of the 1990s by launching

a series of initiatives to stimulate new venture creation, particularly in high-technology

sectors (Gilbert et al., 2004). Similarly, government policies facilitating entrepreneurship

have been fruitful in the USA (Cooper, 2003; Link and Scott, 2012) as well as in Korea

(Nugent and Yhee, 2002).

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©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Public Policy Environment and Entrepreneurial Activities 89

However, there has been limited understanding of the effects of entrepreneurship

policy in developing countries, such as China and India. These countries face even

greater challenges because they all have large populations during their economic

growth, and they have just started to catch up in promoting entrepreneurship. Some

entrepreneurial policies may fail to effectively boost the growth of entrepreneurial

activities because of a lack of rigorous evaluation of the entrepreneurship policies. For

example, the Shanghai municipal government announced that the local government

would compensate venture capitalists for their losses in venture investment in December

2015.1 This policy attracted substantial media attention and caused some debate

over the extent of government intervention in the venture capital market. Therefore,

understanding the potential effects of various entrepreneurship policies can provide

useful guidance to policy-makers on making sound policies that effectively facilitate

a healthy entrepreneurship environment and it is necessary to conduct comprehensive

and in-depth examination of the public policy environment. The published studies in

the eld of entrepreneurship policy mostly focus on the effects of specic policies such

as tax policies (Rin et al., 2011; Braunerhjelm and Eklund, 2013), university support

(Coduras et al., 2008), labor policy (Henrekson et al., 2010), the nancing environment

(Beck et al., 2005), market entry regulations (Klapper et al., 2006) and bankruptcy

laws (Fan and White, 2003; Armour and Cumming, 2008). With few exceptions (e.g.

Cumming and Li, 2013), the published literature lacks a holistic assessment of the effect

of the policy environment in facilitating entrepreneurship. In addition, most published

studies in this eld have conducted country-level analyses, under the assumption that

the policy impacts are uniform across the country (e.g. Cumming and Li, 2013). This

assumption may be appropriate for relatively small developed countries, such as those in

the European Union, but for large developing countries like China, this is not the case.

The same entrepreneurship policies can have very different impacts on different regions

because of the variance in their economic development levels and local government

attributes. Therefore, we need to conduct a more detailed analysis when examining the

potential impact of relevant policies on entrepreneurship development in China.

To fill the gaps in the literature, our study asked the following question: Which

factors, in terms of the public policy environment, effectively facilitate entrepreneurship

in large developing countries, such as China, that have distinct regional differences?

To answer this question, we propose a comprehensive framework that builds upon and

enriches the published literature, so as to provide a holistic and in-depth understanding

of the effects of entrepreneurship policy-making. Our study contributes to the literature

1See: http://www.stcsm.gov.cn/gk/zcfg/gfxwz/fkwwj/343485.htm.

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