Internet development and entrepreneurship

Abstract

We examine the relationship between Internet development and entrepreneurship in China, using survey data from the China Family Panel Studies on individual entrepreneurship and administrative data on new firm registration. Employing instrumental variable (IV) and difference-in-differences (DID) approaches to address the endogeneity of Internet development, we find that Internet development increases the likelihood of individual entrepreneurship and the number of new firm registrations. Our IV model suggests that a one standard deviation increase in the Internet development index increases the likelihood of becoming an entrepreneur by 0.588 standard deviations. Our DID model finds that the Broadband China Program – the inaugural national broadband infrastructure initiative – increases annual new firm registrations by 14,358 in the selected prefectures. These results are robust to a battery of robustness checks. We find that improved access to information and finance are the key mechanisms through which Internet development affects entrepreneurship.