Number of Siblings, Credit Constraints, and Entrepreneurship in China

Abstract

With an under-developed financial market, borrowing from relatives becomes an important funding source in starting one’s own business in China. This paper examines the positive effect of number of siblings on entrepreneurship, using the policy shock of China’s One-Child Policy as the source of identification. We further show that a person tends to borrow more and save less if he/she has more siblings. We also find that siblings serve as a substitute to formal financial institutions, and that parents do not replace siblings as credit providers after the decline of number of siblings. This additional evidence supports our argument on the credit constraints channel.

Keywords: Entrepreneurship, Credit Constraints, Number of Siblings, One-Child Policy

JEL Classification: J23, J13, O16, E21