Research on the Dynamic Relationship Between the Growth of Innovation Activity and Entrepreneurial Activity in China

Abstract

This study aims to empirically investigate the contemporaneous, bidirectional causal relationship between innovation and entrepreneurial activities in China by constructing a dynamic simultaneous equation system. Using panel data from 31 provincial administrative regions from 2000 to 2022, our empirical results demonstrate a robust two-way causal relationship: vigorous innovation activities significantly stimulate the emergence and subsequent growth of entrepreneurial ventures, while entrepreneurial dynamism similarly promotes regional innovation. These findings remain stable and consistent after rigorous robustness checks. Further, employing a Panel Vector Autoregression (PVAR) approach in extended analyses, we find clear evidence of a stable positive feedback loop between innovation and entrepreneurship, characterized by progressive and cumulative effects. Additionally, regional heterogeneity analysis indicates that macroeconomic disparities significantly influence the bidirectional relationship between innovation and entrepreneurship. Specifically, differences in regional resource endowments and economic conditions largely account for variations in innovation–entrepreneurship dynamics across regions. Consequently, local governments should tailor innovation and entrepreneurship policies to regional contexts to maximize economic outcomes effectively under China’s current development paradigm.