The purpose of this paper is to examine the effect of immigrant and ethnic enclaves on the success of entrepreneurial ventures as measured by firm profits and viability.
Data on entrepreneurs and their new firms were provided by the Kauffman Foundation and covered the years 2004-2008. These firm-level data were linked to Census 2000 Summary Files at the ZIP Code level and were used to empirically investigate the effect of enclaves.
The paper found a statistically significant negative effect of immigrant representation in an area on firm profitability. This effect operated on native, rather than immigrant, firm owners, which suggested that native-owned firms locating in immigrant enclaves may experience difficulty assimilating the benefits that enclaves offer.
Cultural connections within local communities play a key role in the success of new businesses. Potential firms should recognize the importance of these connections when making firm location decisions. Likewise, the findings suggest that connections within local communities should be considered when designing aid programs.
The authors used a unique measure of enclave representation to incorporate both immigrant, as well as ethnic, representation in the local area. The authors examined the effect of immigration on both immigrant- and native-owned firms in order to provide a broader scope and a more complete understanding of the effects of immigration on entrepreneurial ventures.
JEL Classifications — L25, L26, L29
The authors acknowledge the financial support of the Ewing Marion Kauffman Foundation through a small grant and access to the KFS data. The authors make use of the confidential KFS data, which were securely accessed through the National Opinion Research Center Data Enclave at the University of Chicago. All results have been reviewed to make sure that no confidential data have been exposed. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the Kauffman Foundation. The authors also acknowledge travel support by the National Opinion Research Center. The authors thank Michael Aguilera, Rebecca Blank, Benjamin Campbell, David Card, John Deskins, Daniel Hammermesh, Dong Li, Simon Parker, Robert Pedace, E.J. Reedy, Alicia Robb, and Dennis Weisman for many helpful comments, criticisms and suggestions on this and related research. The authors also thank seminar participants at the Kauffman Webinar Series, the University of Nebraska, the University of Arkansas, the Western Economics Association International (2010) and the USDA Economic Research Service Microdata Access Workshop. The authors thank Tim Mulcahy and Johannes Fernandes-Huessy for assistance at the NORC Data Enclave and Barbara Bittner for assistance with copy editing. Outstanding research assistance was provided by Eddery Lam, Matthew Turvey, and Jessica Boulware. All mistakes are the authors’ own.
The authors would like to thank David Card for providing the crosswalks which he used to match year 2000 Census MSA's with earlier decennial Census MSA's. The authors note that because the definition was closer to a Consolidated Metropolitan Statistical Area (CMSA) rather than a pure MSA, in some instances, The authors hand-coded a portion of the matches even further to provide an adequate match between the different data sets.
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