Entrepreneurial activity hinders economic growth: evidence from China

Using the annual numbers of newly registered firms and new high-tech firms across 278 Chinese cities between 2011 and 2019, we employ latent class models to cluster cities exhibiting heterogeneous effects of entrepreneurial activity on economic growth. We find that entrepreneurial activity hinders economic growth, with more pronounced effects over a two-year time lag. Chinese cities form two distinct clusters: one large group covering predominantly southern cities and a smaller group comprising mostly northeastern and northwestern cities. Entrepreneurial activity in the former group negatively impacts economic growth significantly, while this effect is insignificant for the latter group.