When Polanyi Met Schumpeter: Social Trust and Entrepreneurship

This research identifies the causality between entrepreneurial behaviour and informal institutions of social trust within the context of China’s development. Revisiting the Polanyi-Schumpeter theoretical framework, entrepreneurship embedded in social relations interlinked by trust is a dynamo of sustainable socioeconomic progress. The institutionalised trust, however, was not clarified. With micro-individual data from the Chinese General Social Survey 2011–2021, our research employs the instrumental variable approach rooted in historical rice farming to tackle endogeneity. The results demonstrate that social trust elevates entrepreneurial engagement by 32.65 and 10.37 percentage points in self-employment and business incorporation, respectively. Increased trust paradoxically hampers self-employment in the central due to insular networks and structural disparities. The findings uncover the nuanced role of social trust in facilitating and constraining entrepreneurship with contextually regional determinants. The research contributes to knowledge and evidence of institutional endowments that mediate entrepreneurial agency and argues for synchronising formal and informal institutions in development.