Working Paper: NBER ID: w31700
Authors: Hanming Fang; Ming Li; Zenan Wu; Yapei Zhang
Abstract: We study the impact of state-owned enterprises (SOEs) on the quality of entrepreneurship in China. Using long series of firm registration and performance data, we document that the massive SOE downsizing in the late 1990s significantly improved the quality of entrepreneur- ship. Compared with entrepreneurs in other time periods, firms founded by the reluctant entrepreneurs induced by the SOE layoffs have better performances. To explain these results, we present a simple model of occupational choices where high-skilled individuals obtain a higher value than low-skilled individuals from the benefits offered by SOE jobs, leading them to select into the SOE sector in the pre SOE reform era. When the SOE sector was downsized, some high-skilled SOE employees were reluctantly unleashed into entrepreneurship. We also provide corroborating evidence for other implications of the model.
Keywords: State-Owned Enterprises; Entrepreneurship; Labor Market; China; Economic Reform
JEL Codes: J08; J28; J68; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| SOE downsizing (J63) | emergence of higher-quality entrepreneurs (L26) |
| SOE downsizing (J63) | increase in number of new firms created (L26) |
| SOE downsizing (J63) | transition of high-skilled individuals into entrepreneurship (L26) |
| layoffs (J63) | increased quality of entrepreneurs (L26) |
| high-layoff provinces (J63) | improved average quality of entrepreneurs post-downsizing (L26) |