Does crime affect entrepreneurship? A discussion of the current literature

Published date07 November 2016
DOIhttps://doi.org/10.1108/JEPP-05-2016-0018
Pages254-272
Date07 November 2016
AuthorJosh Matti,Amanda Ross
Subject MatterStrategy,Entrepreneurship,Business climate/policy
Does crime affect
entrepreneurship? A discussion
of the current literature
Josh Matti and Amanda Ross
Department of Economics, West Virginia University, Morgantown,
West Virginia, USA
Abstract
Purpose There are countless factors that affect where an entrepreneur chooses to open a
business that have been studied in the literature, including local socio-economic conditions,
government polic y, and agglomeration economi es. One important aspect to the location decisio nt hat
has not received as much attention from researchers thus far is the impact of crime on
entrepreneurship. The purpose of this paper is to discuss the current literature on this topic, with a
particular empha sis on the empirical is sues present that hav e likely caused the res earch in this
area to be scarce.
Design/methodology/approach The authors conduct an analysis of the current state of the
literature examining the relationship between crime and entrepreneurship. Looking at what has been
done in the past, as well as improvements in the data, the authors discuss what has been done and
what can be done in the future.
Findings The authors discuss areas related to entrepreneurship and crime that the authors see as an
emerging literature, based largely on the improvements in data and identification strategies that allow
the authors to answer questions that the authors previously could not.
Originality/value This paper is a review of the current literature, which also discusses areas that
future researchers should consider and analyze further.
Keywords Entrepreneurs, Economic growth, Law and economics
Paper type Literature review
I. Introduction
Policy makers at all levels of government strive to attract entrepreneurs to their
jurisdiction as these individuals are considered to be drivers of local economic gro wth
(Neumark et al., 2007; Haltiwanger et al., 2013). Research has examined various socio-
economic factors that affect whether or not an individual becomes an entrepreneur,
such as income, current employment status, race, gender, age, and education (Evans
and Leighton, 1989; Delmar and Davidsson, 2000; Branchflower et al., 2001; Douglas
and Shepherd, 2002; Jansen et al., 2003; Reynolds et al., 2003; Braunerhjelm et al., 2010).
In addition, research on agglomeration economies has shown that local attributes of the
city, as well as the entrepreneurial spirit of the area, can help attract entrepreneurs
(Glaeser et al., 1992; Henderson et al., 1995; Fujita et al., 1999; Glaeser and Kerr, 2009;
Delgado et al., 2010; Saboe and Condliffe, 2015). While policy makers cannot directly
affect many of these local characteristics, they can pursue various policies to try to
attract businesses, such as adjusting tax rates (Gabe and Bell, 2004; Rathelot and
Sillard, 2008; Duranton et al., 2011; Bruce and Deskins, 2012; Rohlin et al., 2014;
Borchers et al., 2016), bankruptcy law and regulations (Fan and White, 2003; Berkowitz
and White, 2004; Mathur, 2005; Armour and Cumming, 2008; Ayotte, 2008; Paik, 2013;
Rohlin and Ross, 2016), the New Markets Tax Credit (Gurley-Calvez et al., 2009;
Freedman, 2015; Harger and Ross, 2016; Harger et al., 2016), and the enterprise zone
Journal of Entrepreneurship and
Public Policy
Vol. 5 No. 3, 2016
pp. 254-272
©Emerald Group Publishing Limited
2045-2101
DOI 10.1108/JEPP-05-2016-0018
Received 2 May 2016
Revised 6 July 2016
Accepted 6 July 2016
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
254
JEPP
5,3
(EZ) program (Oakley and Tsao, 2006; Hanson, 2009; Krupka and Noonan, 2009;
Hanson and Rohlin, 2011a, b; Busso et al., 2013).
Another local attribute that is likely to affect where entrepreneurs choose to start
their new establishment, but has received less attention from researchers thus far, is
crime. Crime affects the cost of doing business in an area, through the direct cost of an
increased risk of having merchandise stolen and through the indirect cost of affecting
the perceived risk of crime by consumers, which reduces the customer base. Despite the
importance of crime to business activity, researchers have not studied how this
component impacts local economic activity as closely. In this paper, we discus s reasons
why this is the case and how future research can use improved data and identification
strategies to expand the currently scarce literature in this area.
To estimate the impact of crime on entrepreneurship, researchers have several
endogeneity issues that must be addressed to obtain causal estimates. While crime
affects where businesses locate, more business activity provides targets for criminals
and will likely attract crime to the area. Similarly, there may be something about the
local area, such as agglomeration economics, that attracts both criminals and
entrepreneurs, simultaneously. Thus, there are likely to be reverse causality and
omitted variables that will cause OLS estimates to be biased. We will discuss in detail
what has been done in the literature to address these problems.
The other issue that has pestered researchers in the past is the quality of data
available on both entrepreneurship and crime. For a long time, the primary data set
available on crime was the FBI Uniform Crime Reports (UCR), which are available at
the police jurisdiction level[1]. Similarly, the primary business data were the county
business patterns, which are available at the county level. However, both crime and
business activity are local phenomena and studying them at the county level may not
be appropriate. As both business and crime data improve, we believe that future
researchers will be able to study the local effects of crime on business activity in a way
that previous researchers could not.
Finally, we discuss areas that we believe should be examined by researchers
across disciplines in the future. For instance, researchers in sociology have been
interested in how the race or ethnicity of an entrepreneur affects criminal activity of
youths of the same race or ethnicity (Parker, 2015). Economists have been interested
in how crime affects the sorting of economic activity, in both the business and
residential sector, and improved data sets will enable researchers to address more
issues in this area (Rosenthal and Ross, 2010; Greenbaum and Tita, 2004).
Management research has examined how the personal locational preferences of an
entrepreneur affect where a new business opens (Bull and Winter, 1991). Future
researchers should work across disciplines to answer these important questions
regarding crime and entrepreneurship and to determine the specific mechanisms
driving entrepreneurial decisions.
The rest of the paper will proceed as follows. We discuss the relevant theories
underlying the empirical work in Section II. In Section III, we discuss the endogeneity
issues present and what existing research has done to address these problems.
We discuss data limitations and improvements in Section IV. In Section V we discuss
emerging areas for future research and conclude in Section VI.
II. Theoretical models of entrepreneurship and crime
We are primarily interested in empirical research on the relationship between crime and
entrepreneurship. However, all good empirical research relies upon well-developed
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Does crime affect
entrepreneurship?

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