Misallocation of Talent and Entrepreneurship: Evidence from China

Abstract

This study examines the impact of talent allocation on entrepreneurship using city-level data from China. The findings indicate that a higher concentration of talent in the public sector reduces both the number and scale of newly established private enterprises. Employing the cadre talent concentration from the early reform era as an IV, the negative effect on newly established enterprises remains significant. This effect is accompanied by a decline in both the number of entrepreneurs and their average capabilities. Talent concentration in the public sector strengthens the government’s tax collection capacity, increasing the burden on enterprises without improving public services.

Keywords: Misallocation, Talent, Entrepreneurship, Public Sector