5. What Facilitates New Firm Formation in China?

New firm formation is essential for the continuing vitality of the modern economy. A higher entry rate of new businesses is a fundamental driver of sustainable economic growth (Djankov et al. 2002). The spatial distribution of new start-ups however is uneven and thus a significant explanation of regional economic disparity (Stam 2010). Silicon Valley appears more entrepreneurial than the declining cities of the Rust Belt in the USA (Glaeser and Kerr 2009). A distinct spatial difference of new start-ups exists in India (Ghani et al. 2014). Likewise, some coastal cities in China appear more active in new firm formation than inland cities. To explain why new firm formation is spatially uneven, previous studies have mainly focused on individual characteristics of potential entrepreneurs such as their location choice preference, age, sex, and educational level (Cooper and Folta 2000; Stam 2007; Michelacci and Silva 2007; Bates 1990; Armington and Acs 2002; Delfmann et al. 2014; Elert 2014). However, it would be difficult for talented entrepreneurs to start a business without favorable external environment (Stam 2010).