Venture capital,innovation, and growth: evidence from Chinese metropolitan data

Using panel data from 282 Chinese cities from 2003 to 2015, we estimate the impact of venture capital (VC) on innovation, employment, and payroll in metropolitan areas. Controlling for endogeneity, VC investments are significantly positively related to metropolitan innovation, employment, and payroll in a fixed effects panel regression and dynamic GMM estimation. Using the number of IPOs (Initial public offerings) in the city as an instrumental variable to again control for endogeneity, VC remains significant. Our results show that VC is significantly contributing to the metropolitan economy as a whole by supporting innovation, creating jobs, and generating wealth in the local cities.