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Access to Credit and Entrepreneurship: Evidence from China

This study investigates the impact of improved access to credit on entrepreneurship. We exploit a quasi-natural experiment—namely, the Postal Savings Bank of China gaining official approval in 2006 to launch its own loan business—to establish causality. Findings reveal that improved access to credit has sizeable positive effects on entrepreneurship, especially in capital-intensive industries and areas with high levels of government institutional quality. Our results are robust to different specifications and alternative measures. Two plausible mechanisms driving our findings are financial constraints and increased demand. Estimations based on the individual-level data of self-employment further support our findings. We also find evidence that access to credit can increase regional employment and business survival rate.