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.