Who Has 'The Right Stuff'? Educational Elites, Entrepreneurship and Institutional Change in China

Abstract:     
Our understanding of the connection between institutions and entrepreneurship is limited. Through their impact on barriers to entry and to growth in entrepreneurship, institutions will influence the types of individuals (specifically their level of human capital) who choose to engage in entrepreneurial activities. This paper shows that when barriers to the growth of entrepreneurial firms are reduced, individuals with higher human capital become entrepreneurs. By exploiting a natural experiment - embodied in the 1999 Chinese constitutional amendment - it is possible to implement a differences-in-differences approach to analyze the causal impact of institutional change on entrepreneurship. Unique data were collected through survey responses from 2,966 alumni who graduated from a leading technical university in China between 1947 and 2007. The results show that the greatest increase in the transition to entrepreneurship was generated by individuals belonging to the top quartiles of a human capital distribution.

Number of Pages in PDF File: 32

Keywords: entrepreneurship, institutional theory, China, human capital

working papers series