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ABSTRACT
On the basis of the role of entrepreneurs in the process of economic development, this paper builds an overlapping generation model to examine the impact of income inequality on economic development from the viewpoint of entrepreneur formation. The results show that in the presence of credit constraints, the impact of income inequality on economic development depends on the stages of development. In the early stages of development, income inequality is beneficial for the formation of entrepreneurs through alleviating the credit constraints. In the later stages of development, however, it is income equality which stimulates the formation of entrepreneurs through alleviating the credit constraints. By the data of China's provinces over the period 2003–2012, this paper estimates the impact of income inequality on the formation of entrepreneurs using the system Generalized Method of Moments approach. The results show that income inequality has a significantly negative impact on the formation of entrepreneurs in both one-step and two-step regressions.
Acknowledgements
We are grateful to conference participants at the 27th CESA annual conference for their helpful comments and suggestions. Haoting Li, Xiangyi Jiang, Li Ou, Yahao Fu, and Qiaolin Chen provided superlative research assistance.
Disclosure statement
No potential conflict of interest was reported by the authors.
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Notes on contributors
Zhaobin Fan
Zhaobin Fan is an associate professor at the Jinan University, China. His main research interests are economic development, international migration and international investment.
Ruohan Zhang
Ruohan Zhang and Xiaotong Liu are graduate and undergraduate, respectively at the Jinan University.