Remittances, ethnic diversity, and entrepreneurship in developing countries

Abstract

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.

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Fig. 1
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Notes

  1. 1.

    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.

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Online Appendix

Online Appendix

Table 6 Baselines results using random effects
Table 7 Baselines results using cross-sectional data
Table 8 Cross-sectional results using quantile analysis
Table 9 Ethnicity and new business creation using alternative measures of ethnicity

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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

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Keywords

  • Migrant remittances
  • New business creation
  • Ethnic diversity
  • Developing countries

JEL Classifications

  • F24
  • J15
  • L26
  • M13