Regional determinants of new business formation in China : prefecture-level evidence

Using a panel data model, we study the effects of regional and industry-level traits on new business formation (NBF) for 164 industries across 266 Chinese prefectures between 1998 and 2007. The objective is to provide empirical estimates on effects of prefecture traits on entry rates, and in particular on effects of prefecture knowledge capital stocks on R&D-intensive new business formation. In line with literature on knowledge spillovers, we find extensive evidence of a positive prefecture knowledge capital stock effect on R&D-intensive NBF rates, whereas knowledge capital stocks do not predict non R&D-intensive entry rates. Among regional and industry-level characteristics, we find that prefecture supplier and customer market strength are strongly linked to higher business entry rates. Our results for China contrast with recent findings on the effects of regional traits on firm entry rates in India and the US, indicating distinct regional patterns of Chinese entrepreneurship.