Immigration and Entrepreneurship

Joshua Bedi

Major Professor: Bryan D Caplan, PhD, Department of Economics

Committee Members: Donald J Boudreaux, Alex Tabarrok

Online Location, Online
June 29, 2021, 11:00 AM to 01:00 PM

Abstract:

This dissertation studies immigrant entrepreneurship, with a special focus on the impact remittances, money sent by immigrants to family back home, have on entrepreneurship. While entrepreneurship can be broadly defined to include a variety of profit-seeking behavior in an environment of uncertainty, this dissertation focuses on entrepreneurship in the form of business creation, a particularly relevant form of entrepreneurship for immigrants and the family members of immigrants who receive remittances. 

This dissertation provides a holistic approach to studying the intersection of research on immigration and research on entrepreneurship by addressing the following questions: How might immigration impact entrepreneurship in the host country? How does immigration impact entrepreneurship in the home country?  Do immigrants impact cultural attitudes that then have an influence upon propensities to start new businesses?

Chapter one of this dissertation focuses on the question of immigrant entrepreneurship in the receiving country by studying differences in propensities to start a business between first-generation immigrants, second-generation immigrants, and natives. My coauthor and I show immigrants are more likely to start a business overall than natives, and this higher propensity begins to diminish as soon as the second-generation. In other words, there are assimilating entrepreneurial tendencies among generations of immigrants, and future generations of immigrants begin to behave more like natives in that both are less likely to engage in business creation than first-generation immigrants. Those second-generation immigrants that do not assimilate entrepreneurially, a process known as “downward assimilation,” suffer poor labor market outcomes. More interesting, we find these differences exist even after controlling for variables such as host-country institutional environment and income levels and growth rates in the host country. This suggests that immigrants are simply more entrepreneurial than natives, either because of what my coauthor and I identify as an “entrepreneurial selection bias” or some other mechanism, like exposure to other cultures. We also identify income as an important mechanism in determining rates of opportunity-motivated entrepreneurship, or business creation for the purpose of pursing profit opportunities, and necessity-motivated entrepreneurship, or business creation because more desirable, traditional labor market opportunities are unavailable.

Chapter two of this dissertation, forthcoming with Shaomeng Jia and Claudia Williamson in the International Journal of Entrepreneurship and Small Business, shifts focus to the question of the impact immigration has on entrepreneurship in the home country by studying how remittances impact entrepreneurial outcomes. My coauthors and I find remittances lead to an increase in early-stage, opportunity-motivated entrepreneurship and a decrease in necessity-motivated entrepreneurship. The mechanism behind this relationship appears to be a decrease in capital constraints, with remittances representing a jolt of capital for potential and existing entrepreneurs. For potential entrepreneurs with no capital to start a business, remittances serve as a way to finance a new enterprise for purposes of pursuing profit opportunities. For current entrepreneurs engaging in necessity-motivated entrepreneurship, remittances provide a means to transition into more productive opportunity-motivated entrepreneurship or to exit necessity-motivated enterprises in pursuit of more traditional employment; in essence, remittances provide necessity-motivated entrepreneurs the capital to “stay afloat” as they look for other employment opportunities.

Finally, chapter three of this dissertation continues the study of the impact of remittances on entrepreneurship in the receiving country by studying another mechanism whereby remittances may lead to increases in business creation. Specifically, on top of representing an increase in capital, remittances may also lead to more “entrepreneurship friendly” beliefs and cultural attitudes. Because remittances represent a sudden growth in income and the reception of a bundle of property rights, I hypothesize remittances to lead to more market-oriented and entrepreneurship-oriented beliefs. Capital is not the only thing transferred from immigrants to their families back home – immigrants also send back social remittances, or beliefs and attitudes from the host-country that may be different from standard beliefs and attitudes in the home-country. I find this to be the case by noting a negative and significant relationship between the reception of remittances and positive attitudes about equality at the country-level. I also find the reception of remittances to be positively associated with positive beliefs about the status and desirability of self-employment as well as positive representation of entrepreneurs in the media. Importantly, I find these associations even after controlling for overall self-employment. This suggests remittances can increase entrepreneurship indirectly through the mechanism of directly changing cultural beliefs and attitudes, not just directly as a sudden boost in capital.