Housing demolition and entrepreneurship: Evidence from China

Abstract

This study examines an underexplored question of how housing demolitions influence entrepreneurial behavior among Chinese households. Using a quasi-natural experiment design and comprehensive household-level data, we find that housing demolitions significantly decrease the likelihood of entrepreneurial activity and diminish business value. We show that the affected households experience a 2 % reduction in startup rates and a 25 % decline in firm value compared to unaffected counterparts. These patterns can be rationalized by shifts in risk tolerance, disruptions in labor supply, and weakened social networks post-demolition. The study reveals the differential sensitivity of entrepreneurship to demographic characteristics, geographic location, and business sectors. Our findings underscore the significance of integrating economic and social considerations into urban redevelopment policies to bolster the entrepreneurial ecosystem. This study offers critical insights for policymakers grappling with the multifaceted impacts of urbanization, emphasizing the need for inclusive strategies to support entrepreneurial endeavors amidst urban transformation.