Determinants of Self‐employment in China: Evidence from Cross‐regional Data

Abstract

Abstract This paper presents and tests a series of sources of regional variations in self‐employment rate in China in the 2000s, and illustrates that the stage of economic development is a major explanation for the variations of self‐employment rate across regions over the past decade. The negative relationship between the stage of economic development and self‐employment rate identified in the paper indicates that China has entered the process of fast industrialization, and self‐employment is playing a diminishing role in economic growth and employment. We also find a substitution effect between self‐employment and private enterprises. While both are important components of China's private sector, private enterprises are becoming an increasingly important source of China's economic growth and employment. Furthermore, our findings also imply that when job opportunities are limited, self‐employment in China is likely a forced choice of disadvantaged people who are not qualified for wage jobs.