Migration barrier relaxation and entrepreneurship: Evidence from the hukou reform in China

Abstract

We study the impact of relaxing internal migration barriers on entrepreneurship by exploiting China’s 2014 nationwide hukou reform and the administrative firm registry. Our difference-in-differences estimation finds that reformed counties experience sizable increases in entrepreneurial activities compared to control counties. The reform induces the creation of firms with a smaller scale and a lower likelihood of survival, indicating moderate expansions in labor demand. Migrant workers’ wages decline and entrepreneurial activities improve most in labor-intensive industries, implying that increased labor supply serves as one underlying mechanism. Our findings highlight the important role that removing domestic labor market frictions plays in promoting entrepreneurship.