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Income inequality, entrepreneur formation, and the economic development: evidence from China

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  • Zhaobin Fan
  • Ruohan Zhang
  • Xiaotong Liu

Abstract

On the basis of the role of entrepreneurs in the process of economic development, this paper builds an overlapping generation model to examine the impact of income inequality on economic development from the viewpoint of entrepreneur formation. The results show that in the presence of credit constraints, the impact of income inequality on economic development depends on the stages of development. In the early stages of development, income inequality is beneficial for the formation of entrepreneurs through alleviating the credit constraints. In the later stages of development, however, it is income equality which stimulates the formation of entrepreneurs through alleviating the credit constraints. By the data of China's provinces over the period 2003–2012, this paper estimates the impact of income inequality on the formation of entrepreneurs using the system Generalized Method of Moments approach. The results show that income inequality has a significantly negative impact on the formation of entrepreneurs in both one-step and two-step regressions.

Suggested Citation

  • Zhaobin Fan & Ruohan Zhang & Xiaotong Liu, 2016. "Income inequality, entrepreneur formation, and the economic development: evidence from China," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 21(3), pages 444-464, July.
    • Handle: RePEc:taf:rjapxx:v:21:y:2016:i:3:p:444-464
    DOI: 10.1080/13547860.2016.1176646
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    1. Bruton, Garry & Sutter, Christopher & Lenz, Anna-Katharina, 2021. "Economic inequality – Is entrepreneurship the cause or the solution? A review and research agenda for emerging economies," Journal of Business Venturing, Elsevier, vol. 36(3).
    2. Sahoo, Pradipta Kumar & Rath, Badri Narayan & Le, Viet, 2022. "Nexus between export, productivity, and competitiveness in the Indian manufacturing sector," Journal of Asian Economics, Elsevier, vol. 79(C).
    3. Rajeev K. Goel & James W. Saunoris, 2020. "Does income inequality sand or grease the wheels of entrepreneurial activity? International evidence," Australian Economic Papers, Wiley Blackwell, vol. 59(2), pages 138-160, June.
    4. Zhaobin Fan & Ruohan Zhang, 2017. "Financial Inclusion, Entry Barriers, and Entrepreneurship: Evidence from China," Sustainability, MDPI, vol. 9(2), pages 1-21, February.

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