Enclaves and entrepreneurial success
| Published date | 14 October 2014 |
| DOI | https://doi.org/10.1108/JEPP-08-2012-0039 |
| Pages | 197-221 |
| Date | 14 October 2014 |
| Author | Charles Braymen,Florence Neymotin |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
Enclaves and entrepreneurial
success
Charles Braymen
Economics and Finance, Creighton University, Omaha, Nebraska, USA, and
Florence Neymotin
H. Wayne Huizenga School of Business and Entrepreneurship,
Nova Southeastern University, Ft. Lauderdale, Florida, USA
Abstract
Purpose – 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.
Design/methodology/approach – Data on entrepreneursand their new firms were provided by the
KauffmanFoundation andcovered the years 2004-2008.These firm-level datawere linked to Census 2000
Summary Files at the ZIP Code level and were used to empirically investigate the effect of enclaves.
Findings – 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.
Practical implications – 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.
Originality/value – 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
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/2045-2101.htm
Received 1 August 2012
Revised 23 January 2013
Accepted 23 January 2013
Journal of Entrepreneurship and
Public Policy
Vol. 3 No.2, 2014
pp. 197-221
rEmeraldGroup Publishing Limited
2045-2101
DOI 10.1108/JEPP-08-2012-0039
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 be en reviewed to make sure that no confidential
data have been exposed. Anyopinions, 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.
197
Enclaves and
entrepreneurial
success
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.
Keywords Entrepreneurship, Immigration, Enclaves, Profits
Paper type Research paper
1. Introduction
Immigrants settling in the USA face an array of choices, which include where to live
and work. The decision of immigrants to live in an area with a high concentration of
other immigrants may be driven by discrimination, or a desire to take advantage
of social capital and other enclave-specific resources (Raijman, 2001; Edin et al., 2003;
Kloosterman and Rath, 2003; Min and Bozorgmehr, 2003; Zhou, 2004; Bauer et al., 2005;
Cutler et al., 2008). Likewise, businesses that locate in such an enclave may benefit from
social capital, the ability to employ cheap labor, or enjoy reduced price competition
(Light, 1972; Aldrich and Waldinger, 1990; Aldrich et al., 1985; Zhou, 2004; Ndofor and
Priem, 2011). However, locating a busin ess in an enc lave may also incur negative
effects,including the need to cater to the product offerings required by enclaveresidents,
difficulties in firm growth and expansion, and a potential lack of cultural understanding
(Aldrich et al., 1985; Aldrich and Waldinger, 1990; Ndofor and Priem, 2011). Therefore,
the overall impact,in terms of firm success, of locating in an enclave could be positive or
negative, and maydiffer across native- andimmigrant-owned firms due to differences in
abilities to utilize beneficial enclave resources.
We use current and representative firm-level data from the Kauffman Firm Survey
(KFS), as well as measures of immigration and local area characteristics from the 2000
US Census to examine the effect of immigrant and ethnic enclaves on the success of
new firms in terms of remaining in business and profitability. In particular, we use
immigrant representation in communities as the measu re of the extent to which
communities existed as immigrant enc laves. Our analysis additionally controlled for
a variety of individual owner and firm characteristics, and also corrected for selection
of location choice, which allowed us to ground our analysis in a causal framework.
Our results indicated that locating in an area with a higher concentration of
immigrants is detrimental to a firm’s success. We also found that this negative effect
was concentrated among native-owned, rather than immigrant-owned firms. Par t of
the explanation for the negative relationship betwe en immigrant area concentration
and firm success was the location of most of the firms’ customers.
Our approach was distinct from earlier efforts for several reasons. First, we used
a unique measure of enclave representation to incorporate both immigran t, as well as
ethnic, representation in the local area. To address the immigration aspect of the
community, we matched firm location at the ZIP Code level with immigrant representation
at that same geographic area level. Our ability to use this information at this narrow level
was made possible by detailed firm-level data, including ZIP Code, provided by the KFS.
Unlike previous studies, our analysis did not focus solely on immigrants or natives as the
affected group of interest. Instead, we 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.
The paper is organized as follows: Section 2 provides background fo r the current
research, Section 3 provides a description of the data and controls, Section 4 describes
motivating elements and the empirical methodology, Section 5 discusses empirical
results, Section 6 details robustness checks and related results, and Section 7 contains
our conclusions from the research.
198
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