Can the mitigation of water constraints promote regional entrepreneurial activity? Evidence from China

Abstract

Traditional entrepreneurial choice models typically consider only entrepreneurial talent and capital inputs, neglecting natural resource endowments. The debate over whether the scarcity of natural resources affects regional entrepreneurial activity remains inconclusive. In countries facing water scarcity, the absence of critical water resources as a production factor is likely to impact regional entrepreneurial activities. This paper investigates the relationship between water constraint mitigation and regional entrepreneurial activities by integrating water resource constraints into the traditional entrepreneurial choice model. Using China, a water-scarce nation, as a case study, we analyze panel data from 249 districts and counties spanning 2008–2020 and employ a double machine learning model for empirical examination. The main findings are as follows: first, alleviating water constraints significantly promotes regional entrepreneurial activities. Second, alleviating water constraints boosts regional entrepreneurial activity by increasing government spending and expanding market demand. Third, the positive effect of alleviating water constraints is more pronounced in regions with stronger financial development, but not in those with weaker financial development. Fourth, alleviating water constraints has the largest marginal effect on entrepreneurial activities in the secondary sector. Finally, improvements in transportation infrastructure can significantly amplify the positive impact of alleviating water constraints on regional entrepreneurial activities. This paper offers policy recommendations for water-scarce countries to enhance the performance of entrepreneurial activities through effective water resource management.