E2025002                                               2025-02-15
 

Wenchao Li   Yifan Lin   Junjian Yi   Haochen Zhang

Abstract

This paper examines the family unit as a form of insurance that promotes entrepreneurship in underdeveloped markets. Focusing on China’s post-1993 economic transition, we study how a spouse’s state employment—offering job stability and social benefits—facilitates the other’s entrepreneurial risk-taking. Using nationwide longitudinal household survey data from the market reform period and a difference-in-difference-in-differences identification strategy, we find that spouses of state-sector employees are 9.8 percentage points more likely to become entrepreneurs post-reform. Drawing on administrative firm data in addition to the survey data, we provide robust evidence that this effect is not primarily driven by political connections linked to state employment. Further analysis shows that family-backed entrepreneurs are more likely to innovate, engage in riskier industries, and achieve better firm performance.

Keywords: Entrepreneurship; State Employment; Family Insurance; Market Reforms; Economic Transitions

JEL codes: L26; P23; D13; O12; J24

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