Entrepreneurial Universities

WHO HAS 'THE RIGHT STUFF'?
HUMAN CAPITAL, ENTREPRENEURSHIP AND INSTITUTIONAL CHANGE IN CHINA
Charles E. Eesley*
Massachusetts Institute of Technology

While it is well established that the institutional environment matters to entrepreneurship, our
understanding of the connection between macro-level institutions and the types of human capital that
are deployed in entrepreneurship is limited. In this paper I argue that through their impact on barriers
to entry and to growth in entrepreneurship, institutions will influence the types of individuals
(specifically their level of human capital) who choose to engage in entrepreneurial activities. Using
unique data from university-educated Chinese engineers, this paper shows that when institutional
change reduces the barriers to the growth of entrepreneurial firms, individuals with higher human
capital tend to become entrepreneurs. By exploiting a natural experiment – a shift in policies shaping
returns to entrepreneurship as embodied in the 1999 Chinese constitutional amendment (that made
illegal prior practices that retarded the growth of entrepreneurial firms) – it is possible to implement a
differences-in-differences approach to analyze the causal impact of policy changes on the transition
to entrepreneurship. Unique data were collected through survey responses from 2,966 alumni who
graduated from a leading technical university in China between 1947 and 2007. The results show
that the greatest increase in the transition to entrepreneurship was generated by individuals belonging
to the top quartiles of a talent distribution. Moreover, firms created by such individuals have higher
productivity and are more innovative.


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- Tan Yinglan
yinglantan@stanfordalumni.org
yinglan_tan@hksphd.harvard.edu

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