Entrepreneurship, market selection and income mobility - evidence from rural china Journal article
Journal of Economic Development, 2021,Volume: 46,Issue: 3,Page: 23-43
Authors: He, Yong; Sun, Guang Zhen

This paper aims at bridging the approaches on entrepreneurship and income mobility with a market selection process. An inter-temporal model is introduced to show that market incentives drive the households with higher entrepreneurial abilities to rationally make greater efforts. As such, market selection works: households with higher abilities earn higher incomes. This selection gives rise to income mobility over time in the favor of the households with higher abilities. Given household choices are also in function of market risk, the performance of market selection varies among countries, depending on the capability of the state to supply an ample market infrastructure and the endowment of social capital in order to reduce market risk. The tests based on a sample of 1530 Chinese rural households during 1989-2009 confirm the theory.