This paper examines the moderating influence of home-country ethnic diversity in the relationship between migrant remittances and new business creation in developing countries. By employing the theories of transaction cost, social network, social identity, and trust, we argue that ethnic diversity is negatively associated with new business creation; nevertheless, it strengthens the positive association between migrant remittances and new business creation in developing countries. We test our hypotheses on 64 developing countries over an 11-year period (2006–2016). This paper contributes to entrepreneurship literature by emphasizing the importance of home-country ethnic diversity in channeling migrants’ remittances to new business creation in developing countries.
Plain English Summary Ethnic diversity leads to a stronger positive link between remittances and new business creation in developing countries. We show that higher remittance-receiving countries create a higher number of new firms on average. Furthermore, this positive relationship is stronger in countries with ethnically diverse societies. Our results underline the importance of the ethnic structure of the country for entrepreneurship and economic development.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
The negative binomial regression coefficients are interpreted as follows: for a 1% change in the per capita remittances, the difference in the logs of expected counts of the new firms is expected to change by the coefficient, given the other predictor variables in the model are held constant.
Acosta, P. (2020). Intra-household labor allocations, migration, and remittances in rural El Salvador. The Journal of Development Studies, 56(5), 1030–1047. https://doi.org/10.1080/00220388.2019.1626832.
Adida, C., & Girod, D. (2010). Do migrants improve their hometowns? Remittances and access to public services in Mexico, 1995-2000. Sage Journal, 44(1), 3–27. https://doi.org/10.1177/0010414010381073.
Akcay, S., & Karasoy, A. (2017). Remittances and calories consumption nexus in Algeria. International Migration, 55(4). https://doi.org/10.1111/imig.12348.
Alesina, A., Baqir, R., & Easterly, W. (1999). Public goods and ethnic divisions. The Quarterly Journal of Economics, 114(4), 1243–1284. https://doi.org/10.1162/003355399556269.
Alesina, A., Devleeschauwer, A., Easterly, W., Kurlat, S., & Wacziarg, R. (2003). Fractionalization. Journal of Economic Growth, 8(2), 155–194.
Alesina, A., & Zhuravskaya, E. (2011). Segregation and the quality of government in a cross section of countries. The American Economic Review, 101(5), 1872–1911. https://doi.org/10.1257/aer.101.5.1872.
Amuedo-Dorantes, C., & Pozo, S. (2004). Workers’ remittances and the real exchange rate: A paradox of gifts. World Development, 32(8), 1407–1417.
Ashby, N. J., & Seck, O. (2012). Remittances, institutional quality, and entrepreneurship (p. 79968). University of Texas.
Azizi, S. S. (2018). The impacts of workers’ remittances on human capital and labor supply in developing countries. Economic Modelling, 75, 377–396. https://doi.org/10.1016/j.econmod.2018.07.011.
Balli, F., & Rana, F. (2015). Determinants of risk sharing through remittances. Journal of Banking and Finance, 55, 107–116. https://doi.org/10.1016/j.jbankfin.2015.02.003.
Bedi, J., Jia, S., & Williamson, C. R. (2020). Brain gains: A cross country study on the relationship between remittances and entrepreneurship. International Journal of Entrepreneurship and Small Business (Forthcoming).
Bernhard, H., Fischbacher, U., & Fehr, E. (2006). Parochial altruism in humans. Nature, 442, 912–915. https://doi.org/10.1038/nature04981.
Bahadir, B., Chatterjee, S., & Lebesmuehlbacher, T. (2018). The macroeconomic consequences of remittances. Journal of International Economics, 111, 214–232. https://doi.org/10.1016/j.jinteco.2018.01.010.
Biggart, N. W., & Delbridge, R. (2004). Systems of exchange. Academy of Management Review, 29(1), 28–49. https://doi.org/10.5465/amr.2004.11851707.
Boudreaux, C. (2020). Ethnic diversity and small business venturing. Small Business Economics, 54(1), 25–41. https://doi.org/10.1007/s11187-018-0087-4.
Buckley, C., & Hofmann, E. T. (2012). Are remittances an effective mechanism for development? Evidence from Tajikistan, 1999-2007, 48(8), 1121–1138. https://doi.org/10.1080/00220388.2012.688816.
Bui, T., Le, T., & Daly, K. (2015). Microlevel impacts of remittances on household behavior: Vietnam case study. Emerging Markets Review, 25, 176–190. https://doi.org/10.1016/j.ememar.2015.10.001.
Chami, R., Fullenkamp, C., & Jahjah, S. (2005). Are immigrant remittance flows a source of capital for development? IMF Staff Papers, 52(1), 55–81.
Churchill, S. A. (2017a). Fractionalization, entrepreneurship, and the institutional environment for entrepreneurship. Small Business Economics, 48, 577–597. https://doi.org/10.1007/s11187.
Churchill, S. A. (2017b). Microfinance and ethnic diversity. The Economic Record, 93(300), 112–141. https://doi.org/10.1111/1475-4932.12310.
Churchill, S. A., & Smyth, R. (2017). Ethnic diversity and poverty. World Development, 95, 285–302. https://doi.org/10.1016/j.worlddev.2017.02.032.
Churchill, S. A., Valenzuela, M. R., & Sablah, W. (2017). Ethnic diversity and firm performance: Evidence from China’s materials and industrial sectors. Empirical Economics, 53(4), 1711–1731. https://doi.org/10.1007/s00181-016-1174-5.
Churchill, S. A., & Mishra. (2018). The impact of ethnic diversity on microenterprise startups. Applied Economics, 50(40), 4328–4342. https://doi.org/10.1080/00036846.2018.1444264.
Churchill, S. A. (2019). Firm financial performance in Sub-Saharan Africa: The role of ethnic diversity. Empirical Economics, 57(3), 957–970. https://doi.org/10.1007/s00181-018-1463-2.
Churchill, S., & Appau, S. (2019). Microfinance in Latin America and the Caribbean: The curse and blessing of ethnic diversity. In Applied Economics (pp. 1–15). https://doi.org/10.1080/00036846.2019.1679344.
Churchill, S. A., Ivanosvki, K., & Bhattacharya, M. (2019). The role of ethnic diversity in sustainable environmental growth: New evidence across different income regions. Applied Economics, 51(4), 398–408. https://doi.org/10.1080/00036846.2018.1497854.
Cummings, M., Deeds, D. L., & Vaaler, P. M. (2019). Migrant tenure abroad and the differential impact of remittances for entrepreneurship in developing countries. Available at SSRN 3460442. https://doi.org/10.2139/ssrn.3460442
Desai, S., Naudé, W., & Stel, N. (2020). Refugee entrepreneurship: context and directions of future research. Small Business Economics. https://doi.org/10.1007/s11187-019-00310-1.
Dişbudak, C. (2004). Transnational and local entrepreneurship. Transnational Social Spaces, 143–162. https://doi.org/10.4324/9781315235707-14.
Docquier, F., & Marfouk, A. (2004). Measuring the international mobility of skilled workers (1990–2000), release 1.0. In The World Bank.
Dow, D., Cuypers, I., & Ertug, G. (2016). The effects of within-country linguistic and religious diversity on foreign acquisitions. Journal of International Business Studies, 47(3), 319–346. https://doi.org/10.1057/jibs.2016.7.
Easterly, W., & Levine, R. (1997). Africa’s growth tragedy: policies and ethnic divisions. The Quarterly Journal of Economics, 112(4), 1203–1250. https://doi.org/10.1162/003355300555466.
Estrin, S., Korosteleva, J., & Mickiewicz, T. (2013). Which institutions encourage entrepreneurial growth aspirations? Journal of Business Venturing, 28(4), 564–580. https://doi.org/10.1016/j.jbusvent.2012.05.001.
Estrin, S., Mickiewicz, T., & Stephan, U. (2016). Human capital in social and commercial entrepreneurship. Journal of Business Venturing, 31(4), 449–467. https://doi.org/10.1016/j.jbusvent.2016.05.003.
Evansluong, Q., & Ramirez-Pasillas, M. (2019). The role of family social capital in immigrants’ entrepreneurial opportunity creation processes. International Journal of Entrepreneurship and Small Business, 36, 1–2. https://doi.org/10.1504/IJESB.2019.096973.
Fafchamps, M. (2000). Ethnicity and credit in African manufacturing. Journal of Development Economics, 61(1), 205–235. https://doi.org/10.1016/S0304-3878(99)00068-1.
Ferriani, F., & Oddo, G. (2019). More distance, more remittance? Remitting behavior, travel cost, and the size of the informal channel. Economic Notes, 48(3), 1–23. https://doi.org/10.1111/ecno.12146.
Freund, C., & Spatafora, N. (2005). Remittances: Transaction costs, determinants, and informal flows. The World Bank Policy Research Working Paper no. 3704.
Gaertner, S., & Dovidio, J. (2000). Reducing intergroup conflict: From superordinate goals to decategorization, recategorization, and mutual differentiation. Group Dynamics: Theory, Research, and Practice, 4(1), 98–114. https://doi.org/10.1037/1089-26188.8.131.52.
Grigorian, D., & Melkonyan, T. (2011). Destined to receive: The impact of remittances on household decision in Armenia. Review of Development Economics, 15(1). https://doi.org/10.1111/j.1467-9361.2010.00598.x.
Haas, H. (2005). International migration, remittances, and development: myths and facts. Third World Quarterly, 26(8), 1269–1284. https://doi.org/10.1080/01436590500336757.
Horowitz, D. L. (1985). Ethnic groups in conflict. Berkeley: University of California Press.
Imai, K., Gaiha, R., Ali, A., & Kaicker. N. (2014). Remittances, growth and poverty: New evidence from Asian countries. Journal of Policy Modeling, 36(3), 524–538. https://doi.org/10.1016/j.jpolmod.2014.01.009.
Kakhkharov, J. (2018). Migrant remittances as a source of financing for entrepreneurship. International Migration, 57(5), 37–55. https://doi.org/10.1111/imig.12531.
Khanna, T., & Palepu, K. (2000). Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. The Journal of Finance, 55, 867–891. https://doi.org/10.1111/0022-1082.00229.
King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. The Quarterly Journal of Economics, 108(3), 717–737. https://doi.org/10.2307/2118406.
Koc, I., & Onan, I. (2004). International migrants’ remittances and welfare status of the left-behind families in Turkey. Sage Journal, 30(1), 78–112. https://doi.org/10.1111/j.1747-7379.2004.tb00189.x.
Kshetri, N., Rojas-Torres, D., & Acevedo, M. C. (2015). Diaspora networks, non-economic remittances, and entrepreneurship development: Evidence from some economies in Latin America. Journal of Developmental Entrepreneurship, 20(01), 1550005. https://doi.org/10.1142/S1084946715500053.
La Ferrara, E. (2002). Self-help groups and income generation in the informal settlements of Nairobi. Journal of African Economies, 11(1), 61–89. https://doi.org/10.1093/jae/11.1.61.
Levitt, P. (1998). Social remittances: Migration driven local-level forms of cultural diffusion. International Migration Review, 32(4), 926–948. https://doi.org/10.1177/019791839803200404.
Liñán, F., & Fernandez-Serrano, J. (2014). National culture, entrepreneurship and economic development: Different patterns across the European Union. Small Business Economics, 42(4), 685–701. https://doi.org/10.1007/s11187-013-9520-x.
Maimbo, S., & Ratha, D. (2005). Remittances: Development impact and prospects. Washington DC: The World Bank.
Martinez, C., Cummings, M. E., & Vaaler, P. M. (2015). Economic informality and the venture funding impact of migrant remittances to developing countries. Journal of Business Venturing, 30(4), 526–545. https://doi.org/10.1016/j.jbusvent.2014.10.004.
Mergo, T. (2016). The effects of international migration on migrant-source households: Evidence from Ethiopian diversity-visa lottery migrants. World Development, 84, 69–81. https://doi.org/10.1016/j.worlddev.2016.04.001.
Naudé, W., Siegel, M., & Marchand, K. (2017). Migration, entrepreneurship, and development: Critical questions. IZA Journal of Migration, 6(5), 1–16. https://doi.org/10.1186/s401760160077-8.
Ndiaye, A. S., Niang, O. K., Dedehouanou, S., Ndione, Y. C. (2016). Migration, remittances, labor market and human capital in Senegal. Working Paper 2016-10. PEP-PMMA.
Nguyen, D., Grote, U., & Nguyen, T. (2017). Migration and rural household expenditures: A case study from Vietnam. Economic Analysis and Policy, 56, 163–175. https://doi.org/10.1016/j.eap.2017.09.001.
Nichols, S. (2002). Another kind of remittance: Transfer of agricultural innovations by migrants to their communities of origin. In Second Colloquium on International Migration: Mexico–California. University of California (29 March).
Ouchi, W. G. (1980). Markets, bureaucracies, and clans. Administrative Science Quarterly, 129–141. https://doi.org/10.2307/2392231.
Ozgen, C., Nijkamp, P., & Poot, J. (2013). The impact of cultural diversity on firm innovation: evidence from Dutch micro-data. IZA Journal of Migration, 2(18), 1–24. https://doi.org/10.1186/2193-9039-2-18.
Pan, F., & Yang, B. (2019). Financial development and the geographies of startup cities: Evidence from China. Small Business Economics, 52(3), 743–758. https://doi.org/10.1007/s11187-017-9983-2.
Petreski, B., Tumanoska, D., Davalos, J., & Petreski, M. (2018). New light on the remittances poverty-health nexus in Macedonia. International Migration, 56(5). https://doi.org/10.1111/imig.12436.
Portes, A., Haller, W., & Guanizo, L. (2002). Transnational entrepreneurs: an alternative form of immigrant economic adaptation. American Sociology Review, 67(2), 278–298.
Reagans, R., & McEvily, B. (2003). Network structure and knowledge transfer: The effects of cohesion and range. Administrative Science Quarterly, 48(2), 240–267. https://doi.org/10.2307/3556658.
Rioja, F., & Valev, N. (2004). Does one size fit all? A reexamination of the finance and growth relationship. Journal of Development Economics, 74(2), 429–447.
Rivera, J. P. R., & Reyes, P. O. (2011). Remittances as avenue for encouraging household entrepreneurial activities. Journal of International Business Research, 10(3), 85–113.
Saxenian, A., (2006). International mobility of engineers and the rise of entrepreneurship in the periphery. econstor.eu Working Paper no. 2006/142.
Sert, E., Bar-Yam, Y., & Morales, A. J. (2020). Segregation dynamics with reinforcement learning and agent-based modeling. Scientific Reports, 10, 11771. https://doi.org/10.1038/s41598-020-.
Sherif, M. (1958). Superordinate goals in the reduction of intergroup conflict. American Journal of Sociology, 63(4), 349–356.
Smallbone, D., Kitching, J., & Athayde, R. (2010). Ethnic diversity, entrepreneurship, and competitiveness in a global city. International Small Business Journal, 28(2), 174–190. https://doi.org/10.1177/0266242609355856.
Sobel, R. S., Dutta, N., & Roy, S. (2010). Does cultural diversity increase the rate of entrepreneurship? The Review of Austrian Economics, 23(3), 269–286. https://doi.org/10.1007/s11138-010-0112-6.
Szkudlarek, B., & Wu, X. (2018). The culturally contingent meaning of entrepreneurship: Mixed embeddedness of co-ethnic ties. Entrepreneurship and Regional Development, 30(5-6), 585–611. https://doi.org/10.1080/08985626.2018.1432701.
Tajfel, H., & Turner, J. C. (1979). An integrative theory of intergroup conflict. In W. G. Austin & S. Worchel (Eds.), The social psychology of intergroup relations (pp. 33–37). CA: Monterey.
Turner, J. C., & Reynolds, K. J. (2011). Self-categorization theory. In Van Lange, Kruglanski, & Higgins (Eds.), Handbook of theories in social psychology (pp. 399–417). Sage Publications. https://doi.org/10.4135/9781446249222.n46.
Williams, A. M. (2007). Listen to me, learn with me: International migration and knowledge transfer. British Journal of Industrial Relations, 45(2), 361–382. https://doi.org/10.1111/j.1467-8543.2007.00618.x.
Vaaler, P. M. (2011). Immigrant remittances and the venture investment environment of developing countries. Journal of International Business Studies, 42(9), 1121–1149. https://doi.org/10.1057/jibs.2011.36.
Vaaler, P. M. (2013). Diaspora concentration and the venture investment impact of remittances. Journal of International Management, 19(1), 26–46. https://doi.org/10.1016/j.intman.2012.11.004.
Vasco, C. (2011). The impact of international migration and remittances on agricultural production patterns, labor relationships and entrepreneurship: The case of rural Ecuador. Kassel, Germany: Kassel University Press GmbH.
Woodruff, C., & Zenteno, R. (2007). Migration networks and microenterprises in Mexico. Journal of Development Economics, 82(2), 509–528.
World Bank. (2019). Remittances on track to become the largest source of external financing in developing countries. World Bank (April 23).
Yavuz, R. I. (2013). The outsider entrepreneurs. Texas, US: LFB Publishing.
Yang, D. (2008). International migration, remittances and household investment: Evidence from Phillipine migrants’ exchange rate shocks. The Economic Journal, 118(528), 591–630. https://doi.org/10.1111/j.1468-0297.2008.02134.x.
Zheng, C., & Musteen, M. (2018). The impact of remittances on opportunity based and necessity based entrepreneurial activities. Academy of Entrepreneurship Journal, 24(3), 1–13.
Zhunio, M. C., Vishwasrao, S., & Chiang, E. P. (2011). The influence of remittances on education and health outcomes: A cross country study. Applied Economics, 44(35), 4605–4616. https://doi.org/10.1080/00036846.2011.593499.
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
About this article
Cite this article
Yavuz, R.I., Bahadir, B. Remittances, ethnic diversity, and entrepreneurship in developing countries. Small Bus Econ (2021). https://doi.org/10.1007/s11187-021-00490-9
- Migrant remittances
- New business creation
- Ethnic diversity
- Developing countries