Born by water: Does water resource reallocation promote entrepreneurship?

Abstract

Is water the wellspring of entrepreneurship? This study addresses this question by leveraging the exogenous shock associated with China's South-to-North Water Diversion Project (SNWDP), and employing a staggered difference-in-differences model to evaluate the impact of water resource reallocation on entrepreneurship. The results yield three notable findings. First, the SNWDP can significantly promote entrepreneurship in water-receiving regions, and this conclusion follows a series of robustness tests. Second, heterogeneity analyses of water transfer routes, regional water endowments, and industrial water dependence indicate that the recipient regions along the East Route exhibits greater entrepreneurial vitality compared to the Middle Route, and the SNWDP provides stronger incentives for entrepreneurship for water-scarce regions and high water-consuming industries. Third, the mechanism test reveals that the SNWDP optimizes the local entrepreneurial environment, which promotes entrepreneurship, primarily by reshaping water input, output, and labor supply advantages of the affected regions. This study yields significant policy implications for the continual optimization of water resource allocation, aimed at fostering high-quality employment.