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. (JEL G1, H00, O10, P2, P3 )