Entrepreneurial Ecosystems, New Business Formation, and Scale-up Activity: Evidence from 286 Chinese Cities

This paper examines the effects of the quality of entrepreneurial ecosystems on new business formation and scale-up activity in China at the city-industry level. Accounting for only large and fast-growing firms, we focus on productive entrepreneurship which creates economic wealth. Based on a newly constructed panel dataset for 29 manufacturing industries and 286 prefecture-level cities of China during the period 1998-2009, we find that entrepreneurial ecosystem components, including access to finance, knowledge, marketization, local market demand, and entrepreneurial culture, are important determinants in explaining the differences in entrepreneurial activity across city-industry clusters and over time. Analysing a dynamic period in China's industrialization with large regional variation in economic development, we show that the relative importance of the ecosystem components in shaping entrepreneurial activity changes over time when regions develop. In addition, we show that interaction between the ecosystem components - indicating system strength - has additional power in explaining new business formation and scale-up activity.