| Abstract | The entrepreneur-enhancing effect of urban agglomeration economies is a new topic in current research field, which is also the expectation of Chinese government's urbanization strategy. This paper theoretically and empirically examines the question of what makes cities more entrepreneurial. The theory shows that urban agglomeration economies can promote entrepreneurship through three mechanisms, including market proximity and entrepreneurial opportunities, labor pool and entrepreneurial talents matching, knowledge spillovers and entrepreneurial ideas. The empirical evidence based on individual and city data shows that diversity externalities rather than specialization externalities promote entrepreneurship which is more evident in startups and small firms, consistent with the idea of “nursery cities”. Finally, this paper provides some policy implications for urban entrepreneurial ecosystem. |