Trustworthiness of local government, institutions, and self-employment in transitional China

In this paper, we investigate the relationship between the trustworthiness of the local government and individuals' self-employment decision by using data from the China Family Panel Studies. We find that the trustworthiness of the local government has a statistically significant role in individuals' decision about self-employment and that the marginal effect on self-employment is context dependent and increases with the quality of the institutions. The trustworthiness of the local government prompts self-employment in provinces where the market institutions are well developed and suppresses it in other regions. Heterogeneity concerns on rural-urban and generations are also explored. We also find that the quality of market institutions increases self-employment, and the scale increases with the trustworthiness of the local government.