Urban Employment in Small Businesses and the Level of Economic Development: Evidence from Chinese Cities

Abstract

Based on a panel of Chinese cities over the period 2004-2009, we analyze the relationship between the level of economic development and the share of urban employment in small businesses. We find that this relationship can be described by an inverted U-shape. In cities with lower levels of economic development, the restructure of the state sector along with a booming service industry is associated with a higher share of employment in small businesses. On the other hand, in cities with higher levels of economic development, a more vibrant manufacturing sector is related to a lower share of employment in small businesses.