Migration barrier relaxation and entrepreneurship: Evidence from the hukou reform in China

We study the impact of relaxing internal migration barriers on entrepreneurship by exploiting China's 2014 nationwide hukou reform and the administrative firm registry. Our difference-in-differences estimation finds that reformed counties experience sizable increases in entrepreneurial activities compared to control counties. The reform induces the creation of firms with a smaller scale and a lower likelihood of survival, indicating moderate expansions in labor demand. Migrant workers' wages decline and entrepreneurial activities improve most in labor-intensive industries, implying that increased labor supply serves as one underlying mechanism. Our findings highlight the important role that removing domestic labor market frictions plays in promoting entrepreneurship. • This paper studies the impact of internal migration on entrepreneurship. • We exploit variation from China's recent nationwide migration barrier relaxation. • The reform leads to sizable increases in firm entry in treated counties. • New firms are small, have a low survival rate, and are in labor-intensive industries. • Removing domestic labor friction promotes entrepreneurship in the developing world.