Subway and entrepreneurship

Abstract

Improved public transportation is widely considered to stimulate economic activity, but its impact on two contrasting dynamics—new firm creation and the growth of existing firms—remains unclear. This study examines the effect of introducing a subway system on entrepreneurship, leveraging a novel administrative dataset from China. Our findings reveal that the introduction of subways in a city significantly reduces both the number of new firms and employment in those firms. The effect is more pronounced for small business creation and in markets with a higher presence of potential marginal entrepreneurs, as the decreased commuting costs may outweigh the opportunity cost of starting a business. Furthermore, this negative effect is evident only in areas with low road density, suggesting that subway systems substantially reduce commuting costs when alternative transportation options are limited.