Why do entrepreneurs enter politics? Evidence from China

This article examines the determinants of the entrepreneur's political participation by employing a unique matched firm-institution data set from China. We find that the likelihood of an entrepreneur's participation can be explained by the underdevelopment of markets and market-supporting institutions. According to our estimates, the probability of entering politics decreases by 8-20% from the mean when the institutional indices improve by one standard deviation. Our findings support the view that the institutional environment shapes the private entrepreneur's motivation to participate in politics; they also provide an example of how private entrepreneurs respond to state/market failure in developing and transition countries.