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More but not better: Career incentives of local leaders and entrepreneurial entry in China

Author

Listed:
  • Chuantao Cui

    (Bay Area International Business School, Beijing Normal University)

  • Leona Shao-Zhi Li

    (University of Macau)

Abstract

This study explores how local leaders’ career incentives influence entrepreneurial activity in China. We identify a positive relationship between high-incentive leaders and the entry rate of new manufacturing firms, facilitated by access to capital and land and the implementation of place-based policies. However, firms that enter the market under high-incentive leaders tend to experience lower productivity growth and lower survivability, highlighting a quantity–quality trade-off. This quality deficit is linked to a mismatch between the types of new entrants and local economic fundamentals. Additionally, the responsiveness of manufacturing exit rates, productivity growth of existing manufacturers, and service firm dynamics to leader incentives appears minimal. Overall, by illuminating both the advantages and limitations of second-best institutions through the lens of firm entry, our study provides new insights into the institutions–growth nexus and offers a cohesive framework for understanding the growth and slowdown of the Chinese economy.

Suggested Citation

  • Chuantao Cui & Leona Shao-Zhi Li, 2024. "More but not better: Career incentives of local leaders and entrepreneurial entry in China," Working Papers 202417, University of Macau, Faculty of Business Administration.
    • Handle: RePEc:boa:wpaper:202417
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    File URL: https://fba.um.edu.mo/wp-content/uploads/RePEc/doc/202417.pdf
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    More about this item

    Keywords

    Informal institution; career incentives; economic growth; firm dynamics; entrepreneurship;
    All these keywords.

    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P35 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance

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