Democratic Governance, Kinship Networks, and Entrepreneurial Development: Evidence from Rural China

Abstract

Existing entrepreneurship literature has focused on formal regulatory institutions but has rarely examined effects on entrepreneurship of formal political institutions, particularly that of democracy. This study explores the role of democracy in entrepreneurial development, as well as how democracy moderates the role of kinship networks, in a developing or emerging economy setting. Integrating new institutional economic theory with social network theory, this study examines the rate of rural entrepreneurship in China by arguing that stronger local democratic governance facilitates entrepreneurial development and negatively moderates the role of kinship networks in entrepreneurial development. In particular, while kinship networks have a positive effect on entrepreneurial development when democratic governance is weak, their effect turns negative when it is strong. We use a national sample of villages from China for our empirical test. Results from both Ordinary Least Squares and an instrumental variable approach provide strong support for our hypotheses. The research contributions and implications are discussed.