Assistant Professor Lei (Jeremy) Xu and his collaborators have conducted research showing that government response to protests can bring unexpected economic effects that help spur entrepreneurship. The London School of Economic and Political Science recently published an article about their work in its LSE Business Review. (Photo by Derik Holtmann)
Street protests are typically unwelcome events for business owners. They might feel compelled to keep their shops closed as they and their customers keep their distance, looking to avoid getting dragged into the social unrest.
But new research from University of Missouri–St. Louis Assistant Professor Lei (Jeremy) Xu and his collaborators at the University of Alberta, the University of Southern California and the University of Texas at Dallas has shown that the government response to protests, particularly in developing countries, can bring unexpected economic effects that, while aimed at promoting stability, can also be a boon to entrepreneurship.
The London School of Economics and Political Science published an article by Xu and his colleagues last week in its LSE Business Review. In it, they describe their study, the results of which they published in the March-April issue of the journal Organization Science.
The study focused specifically on events that occurred in China between 2008 and 2019. In particular, they examined a longitudinal prefecture-level panel dataset of 2,607 observations from that period, focusing on street protests that concerned noneconomic issues, such as environmental protection and human rights. They explored what happened to new venture formation after protests.
“The results show that protests were associated with approximately 1,466 additional newly founded ventures on average,” the article said. “More importantly, the evidence points to a mechanism: protests were followed by increases in business lending and regulatory reforms, and these changes were associated with subsequent venture formation.”
Xu, a member of the faculty in the Department of Marketing and Entrepreneurship in UMSL’s Ed G. Smith College of Business, and his research collaborators believe that local political leaders, particularly in China, are often motivated to defuse protests as part of a policy of “stability maintenance.”
Authorities might rely on police, surveillance and censorship to try to keep protests from forming, and they can be quick to detain protest organizers. But they also want to maintain order and show economic growth in their jurisdictions, and they can do so by offering economic incentives.
They cited the response to environmental protests in Xiamen in 2007, Dalian in 2011, Ningbo in 2012 and Maoming in 2014 as instances when chemical projects were suspended or relocated in the face of protests.
“Our argument is that the concessions need not stop at the disputed project,” Xu and his colleagues wrote. “Government officials seeking to restore public confidence may also expand access to credit or ease regulation. These responses are aimed at stability, not entrepreneurship, but they can inadvertently open up room for new businesses.
“This creates a chain of effects: street protest → local government response → resource allocation → entrepreneurial opportunity. The protest may have nothing to do with entrepreneurship, yet its institutional consequences can make it easier for people to start businesses.”
Read the full article in the LSE Business Review.
