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Natural Resource Shocks and Entrepreneurship: Evidence from Coal Productions in China


E2018013                         2018-04-11

Dai Ruochen, Li Lixing, Xi Tianyang, and Xie Xuanli


This paper studies how the dependence on natural resource shapes entrepreneurship in the Chinese context. We exploit the sharp decline of global coal price from 2012 to 2014 as an exogenous shock  to identify the sector-specific impact of   domestic coal production on entrepreneurship. Using a comprehensive data set of firm registration, the paper finds a strong negative effect of coal production on the establishment of firms. Thus, a weak coal price provided an opportunity for the Chinese economy to pull out of the  resource dependence trap. In response to the declining coal sector, potential and existing entrepreneurs take advantage of the decreased opportunity cost and lower entry barriers to establish firms. Induced entrepreneurial activities are more vigorous in sectors with a higher level of downstreamness relative to, and of higher proximity with, the coal sector in the production network.

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