Breaking spatial barriers: how urban-rural transportation integration reshapes rural entrepreneurial entry

This paper examines the causal impact of China's urban-rural transportation integration on the number of rural firm entries, using the “Urban-Rural Transportation Integration Demonstration County” policy as a quasi-natural experiment. Employing a multi-period difference-in-differences framework, this analysis reveals a positive effect of this integration on stimulating rural entrepreneurial entry. Specifically, compared to untreated areas, counties implementing the policy experienced an average increase of 27.1% in the number of rural firms. Further investigation into the potential mechanisms indicates that this positive impact stems from reducing geographical segmentation, improving financial accessibility, and facilitating rural labor mobility. Moreover, urban-rural transportation integration promotes the development, particularly of individual businesses and farmer cooperatives. The effect is significant for high-elasticity industries such as agriculture, forestry, animal husbandry, fishery, manufacturing, and construction, but insignificant for low-elasticity industries such as services and wholesale and retail trade. Findings also suggest that digital infrastructure improvements exhibit complementarity with the advancements in traditional transportation infrastructure represented by urban-rural transportation integration, yielding marginally increasing effects. Importantly, while the policy tends to support small and micro enterprises and low-income groups, it doesn't challenge the established market position of urban enterprises. This study contributes to the literature on the entrepreneurial effects of transportation infrastructure and provides insights for developing countries seeking to stimulate rural entrepreneurial entry through urban-rural transportation integration.