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The relationship between credit constraints and household entrepreneurship in China

Author

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  • Cai, Dongliang
  • Song, Quanyun
  • Ma, Shuang
  • Dong, Yang
  • Xu, Qiuhua

Abstract

This paper evaluates the impact of credit constraint on entrepreneurship by utilizing 2011 China Household Finance and Survey micro-data. We measure household credit constraint directly and use the LPM model to estimate the impact of credit constraint on entrepreneurship. We employ predetermined credit constraint, quasi-experiment, and instrumental variable to eliminate the possible endogeneity problem. Empirical estimates show that credit constraint significantly decreases the probabilities of households to start businesses by around 3 percentage points in general. Further analysis shows that credit constraint significantly decreases the propensity of households to entry into enterprise operation, while it has no significant impact on small handicraft operation.

Suggested Citation

  • Cai, Dongliang & Song, Quanyun & Ma, Shuang & Dong, Yang & Xu, Qiuhua, 2018. "The relationship between credit constraints and household entrepreneurship in China," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 246-258.
    • Handle: RePEc:eee:reveco:v:58:y:2018:i:c:p:246-258
    DOI: 10.1016/j.iref.2018.03.024
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    2. Zhou, Jun & Zhang, Xueyi & Korkmaz, Aslihan Gizem & Ding, Xin & Yue, Pengpeng, 2024. "Mirroring the urban exodus: The impact of return migration on rural entrepreneurship," Finance Research Letters, Elsevier, vol. 66(C).
    3. Fang, Guanfu & Gao, Tiantian & He, Huanlang & Sun, Qian, 2023. "Public credit information arrangements and entrepreneurship: Evidence from China," China Economic Review, Elsevier, vol. 81(C).
    4. Chun Jiang & Amei Feng & Chunhuan Xiao, 2021. "Does Capital Account Liberalization Spur Entrepreneurship: The Role of Financial Development," Sustainability, MDPI, vol. 13(16), pages 1-19, August.
    5. Ablam Estel Apeti & Jean-Louis Combes & Eyah Denise Edoh, 2023. "Entrepreneurship in developing countries: can mobile money play a role?," Working Papers hal-04081304, HAL.
    6. Liu, Chen & Yang, Wei, 2023. "Does social insurance stimulate business creation? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    7. Li, Feng & Xiao, Jing Jian, 2020. "Losing the future: Household wealth from urban housing demolition and children's human capital in China," China Economic Review, Elsevier, vol. 63(C).
    8. Li, Rui & Wang, Tianyu & Zhou, Mingshan, 2021. "Entrepreneurship and household portfolio choice: Evidence from the China Household Finance Survey," Journal of Empirical Finance, Elsevier, vol. 60(C), pages 1-15.
    9. Vieira, Flávio Vilela & Silva, Cleomar Gomes da, 2023. "Looking for asymmetries between credit and output in the BRICS countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 39-52.
    10. Syed Manzur Quader & Mohammad Nayeem Abdullah, 2020. "How financial market in Bangladesh appraises efficiency?," Economic Change and Restructuring, Springer, vol. 53(3), pages 475-494, August.
    11. Xiaofen Yu & Dingpei Hu & Mingzhi Hu, 2024. "Unveiling the impact of housing debt on entrepreneurship: Evidence from China," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 11(2), May.
    12. Xu, Nana & Yuan, Yan & Rong, Zhao, 2022. "Depressed access to formal finance and the use of credit card debt in Chinese SMEs," China Economic Review, Elsevier, vol. 72(C).
    13. Silin Liu & Jia He & Dingde Xu, 2023. "Understanding the Relationship between Financial Literacy and Chinese Rural Households’ Entrepreneurship from the Perspective of Credit Constraints and Risk Preference," IJERPH, MDPI, vol. 20(6), pages 1-15, March.
    14. Miao, Shuchao & Chi, Jing & Liao, Jing & Qian, Long, 2021. "How does religious belief promote farmer entrepreneurship in rural China?," Economic Modelling, Elsevier, vol. 97(C), pages 95-104.

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    More about this item

    Keywords

    Credit constraint; Entrepreneurship; Household finance;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • R29 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Other

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