This research examines the determinants of entrepreneurship in China’s transition from agriculture to domestic production in the 1990’s and the subsequent transition to exporting in the 2000’s. The model that we develop and test to describe these transitions incorporates a productivity enhancing role for community (birth county) networks, which emerge in response to market imperfections at early stages of economic development. Using administrative data covering the universe of registered firms over the 1994-2012 period and the universe of exporters over the 2002-2012 period, we provide causal evidence that these networks of firms were active and were effective at increasing the revenues of their members, both in domestic production and exporting. While this substantially increased the number of domestic producers in the first stage, the incumbent domestic networks created a disincentive to enter exporting in the second stage that dominated the positive effect of the export networks. Our analysis provides a novel characterization of the development process in which community-based networks emerge at each stage to facilitate the occupational mobility of their members, and pre-existing networks slow down the growth of the networks that follow.
We provide evidence of the role of community networks in emergence of Indian entrepreneurship in early stages of cotton and jute textile industries in the late 19th and early 20th century respectively, overcoming lack of market institutions and government support. From business registers, we construct a yearly panel dataset of entrepreneurs in these two industries. We find no evidence that entry was related to prior upstream trading experience or price shocks. Firm directors exhibited a high degree of clustering of entrepreneurs by community. Consistent with a model of network-based dynamics, the stock of incumbent entrepreneurs of different communities diverged non-linearly, controlling for year and community fixed effects.