A Study On The Resource Curse To The Entrepreneur Formation Mechanism Of The Traditional Agricultural Regions

The traditional view of development economics is that capital formation was regarded as a key factorfor an agricultural society’s industrialization. Accordingly, we can get the following corollary: the regionswith poor agricultural production conditions were more difficult for capital accumulation and startingindustrialization progress than the regions with better agricultural production conditions. However, thepaper has observed the opposite cases that compared with their neighbors, some regions with betteragricultural production conditions have lagged behind in economy development and industrialization. Thispaper argues that agricultural production conditions have not only a positive effect of capital formationwhich benefit industrialization, but also an inhibitory effect of entrepreneurship. The paper defined theinhibitory effect as "resource curse of agricultural production conditions".The resource curse formed by agricultural production conditions is a trap to prevent the agriculturalregions from starting their industrialization. Based on the literature review in chapter II, The paper hasproposed a hypothesis to explain the mechanism of the “resource curse”: endowment differences inagricultural production conditions have caused a selection effect on residents’ choice of career. In theregion with better agricultural production conditions, the residents tend to choose farming as theiroccupation because of the steady return, which is not conducive to the production of entrepreneurs as wellas the course of industrialization. To test the hypothesis, the paper has made an empirical research by usingthe local economic data of18districts in Henan province though13years. And, the results lend theirsupport to the hypothesis. Moreover, the effect of agricultural production conditions to entrepreneurship isnonlinear, which can be described as a U-shaped curve. So, the particular "resource curse" occurs conditionally. It can be find only in the areas with better agricultural production conditions and low income.The results of empirical research also show the comparative advantage in agriculture may produce a"crowding out" effect. Business cycle and financial developments will produce a non-linear effect onentrepreneurship. And, the comparative advantage in agriculture will restrict the positive impact onentrepreneurship produced by financial development and business prosperity. In addition, the results of thestudy have implied that the increments of formal financial institutions and private finance were contrary.The results of empirical research have supported the hypothesis presented in this paper, but it stillneeds a theoretical explanation to clarify the mechanism of the resource curse. In chapter4, the paperconstructs a career choice model to explain the mechanism. The model has pointed out that differences inagricultural production conditions lead to different farming income, which is the opportunity cost ofentrepreneurial activity. Better conditions for agricultural production mean higher opportunity cost ofentrepreneurial activity, and thus the higher opportunity cost suppressing entrepreneurial activity with highrisks.Meanwhile, the theoretical model has depicted the necessary conditions for "resource curse". Firstly,the restricted financing capacity is an important condition of "resource curse". Under the situation offinancial repression, the restricted financing capacity has limited the scales and returns of entrepreneurialactivities. Without the financial repression, the returns of entrepreneurial activities will be higher and theopportunity cost will no longer be important, so there will be no such "resource curse." Secondly, therestricted labor mobility is another important condition of "resource curse". At the beginning of China’sreform and opening up, rural residents didn’t have enough opportunities to get a non-agriculture job. It isthe reason that led to the opportunity cost of entrepreneurial activity determined by the agriculturalproduction conditions, thus forming the resource curse phenomenon of the traditional agricultural regions. If the labors can go to urban areas and seek jobs offered by manufacturing or services sectors whichprovide higher salaries, the opportunity cost of entrepreneurial activity will no longer be measured by theagricultural production conditions. And, there will not be the "resource curse" phenomenon. Thirdly, thepresupposition, the rural residents’ preference for consumption and saving should have quasi-linearcharacteristics, is necessary.The explanation of the "resource curse" model depends on the rural residents’ incremental savingfunction, which is based on quasi-linear preference. The presupposition has consisted with Engel’s lawwhich is used frequently to describe the low-income consumer’s behavior, and corresponded to Rostoviantake-off model. Fourthly, low degree of market integration is also one of the conditions of "resource curse".If the market is well-integrated, then entrepreneurs may seek investment opportunities in the whole marketinstead of the local investment opportunities. Thus, the resource curse phenomenon is limited to thespecific conditions. As the degree of market integration improved, the better resource regions will get betterdevelopment and investment opportunities, and then the "resource curse" phenomenon will no longer exist.In the new economic and social environment, industrial shift presents a new approach toindustrialization for the traditional agricultural regions. Industrial shift also changes the entrepreneurs’formation and development mechanism. The factors of macroeconomic environment will play a key role inthe entrepreneurs’ formation and development.Finally, the paper has drawn the conclusions of the study. On the basis of summarizing the innovationsand deficiency of the study, the paper also points out the direction of the successive research such as:expanding data from cross-sectional and time-series to make the empirical research better; introducinginstitutional and cultural variables to the model to control their disturbance to the Regression Analysis;considering the inter-regional flow of the product factors to make the research describing real-life better; testing the new hypotheses provided by the paper such as "crowding out" effect between the private financesector and the formal finance sector or "agricultural comparative advantage trap"; Dynamiting thetheoretical model so that the content can explain the industrialized progress of the undeveloped regions inthe sense of dynamic general equilibrium without limited to comparative static analysis.