Informal institutions in transition: how entrepreneurial role models shape rural entrepreneurship in post-reform China

In transitional economies, underdeveloped formal institutions constrain rural growth, underscoring the critical compensatory role of informal, socially embedded mechanisms. This study examines one such mechanism in post-reform China: the influence of locally successful entrepreneurial role models on rural household entrepreneurship. Analysing national data from the China Household Finance Survey (2017, 2019) with an instrumental variable approach, we find that proximity to role models significantly increases the propensity of rural households to start businesses. This effect is amplified among households that invest more actively in social interaction and information acquisition, two core dimensions of social capital within strong-tie networks, and is most pronounced for households with middle-aged heads, intermediate education, and medium income. These findings highlight how pre-existing social structures act as conduits for policy implementation and endogenous market formation, with localised exemplars serving as social capital nodes that mitigate uncertainty and catalyse productive behaviour during institutional transition.