Appropriate Entrepreneurship? The Rise of China and the Developing World

Global innovation and entrepreneurship has traditionally been dominated by a handful of high-income countries, especially the US. This paper investigates the international consequences of the rise of a new hub for innovation, focusing on the dramatic growth of high-potential entrepreneurship and venture capital in China. First, using comprehensive data on global venture activities, we show that as the Chinese venture industry rose in importance, entrepreneurship increased substantially in other emerging markets, particularly in sectors dominated by Chinese companies. Using a broad set of country-level economic indicators, we find that this effect was driven by country-sector pairs most similar to their counterparts in China. Second, turning to mechanisms, we show that the baseline findings are driven by local investors and by new firms that more closely resemble existing Chinese companies. Third, we find that this growth in emerging-market investment had wide-ranging positive consequences, including a rise in serial entrepreneurship, cross-sector spillovers, innovation, and broader measures of socioeconomic well-being. Together, our findings suggest that developing countries benefited from more “appropriate” businesses and technology pioneered by China, and that a system where only rich countries lead in innovation could limit entrepreneurial activity in large parts of the world.