Entrepreneurship in China: The role of localisation and urbanisation economies

Abstract

Why are some regions more entrepreneurial than others? This study explores the determinants of manufacturing entrepreneurship at the prefectural city level in China by highlighting the influence of localisation and urbanisation economies and the significance of technological relatedness and small firm clusters. Descriptive analysis has reported significant and increasing spatial variation of manufacturing entrepreneurship in China during 2001–2007. The empirical results based on the negative binomial model provide evidence to support the business network view of entrepreneurship. Localisation economies can predict entrepreneurship well, while the effects of urbanisation economies are mixed. In terms of localisation economies, supplier/customer linkages play a very important and positive role in cultivating entrepreneurship. The mixed results of urbanisation economies are mainly derived from the interweaving of related variety and unrelated variety. The former significantly promotes entrepreneurship, while the latter in most cases discourages entrepreneurship. The clustering of small firms has a larger effect on entrepreneurship, which is consistent with the view of Vernon and Chinitz effect.