The impact of ethnic communities on immigrant entrepreneurship : evidence from Sweden

TLDR: In this article, the authors investigate to what extent the decision of an employed immigrant to become an entrepreneur is associated with his or her embeddedness in ethnic networks in the host region.

Abstract: This paper seeks to provide novel insights into the effects of ethnic communities on immigrants’ entrepreneurial activities. We investigate to what extent the decision of an employed immigrant to become an entrepreneur is associated with his or her embeddedness in ethnic networks in the host region. We capture such embeddedness through various mechanisms. Using longitudinal-registered data from Sweden and employing a logit model, we find that merely being located in an ethnic community does not have an influence on immigrant entrepreneurship; rather, what matters is being located in ethnic communities that have a high share of entrepreneurs themselves.

Figures

Figure 1: Marginal effect across nine ethnic group categories

Table 1-Determinant of leaving employment for entrepreneurship among immigrants (and natives as control group)

Full text

The Impact of Ethnic Communities on
Immigrant Entrepreneurship: Evidence from Sweden
Sam Tavassoli (sam.tavassoli@rmit.edu.au)
RMIT University, Australia & CIRCLE, Lund University, Sweden
Michaela Trippl (michaela.trippl@univie.ac.at)
Department of Geography and Regional Research, University of Vienna, Austria
Papers in Innovation Studies
Paper no. 2017/17
This is a pre-print version of paper, which has been submitted to a journal.
Centre for Innovation, Research and Competence in the Learning Economy
(CIRCLE)
Lund University
P.O. Box 117, Sölvegatan 16, S-221 00 Lund, SWEDEN
http://www.circle.lu.se/publications

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WP 2017/17
The Impact of Ethnic Communities on Immigrant
Entrepreneurship: Evidence from Sweden
Sam Tavassoli, Michaela Trippl
Abstract: This paper seeks to provide novel insights into the effects of ethnic communities on
immigrants’ entrepreneurial activities. We investigate to what extent the decision of an
employed immigrant to become an entrepreneur is associated with his or her embeddedness
in ethnic networks in the host region. We capture such embeddedness through various
mechanisms. Using longitudinal registered-data from Sweden and employing a Logit model,
we find that merely being located in an ethnic community does not have an influence on
immigrant entrepreneurship; rather what matters is being located in ethnic communities that
have a high share of entrepreneurs themselves.
Keywords: Immigrants; entrepreneurship; ethnic communities; embeddedness; social capital
JEL: J61; M13; D83
Disclaimer: CIRCLE does not take any responsibility for opinions and views expressed by the
authors in this paper.

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The Impact
The ImpactThe Impact
The Impact
of
of of
of Ethnic Communities
Ethnic CommunitiesEthnic Communities
Ethnic Communities
on Immigrant
on Immigranton Immigrant
on Immigrant
Entrepreneurship
EntrepreneurshipEntrepreneurship
Entrepreneurship:
::
:
Evidence from Sweden
Evidence from SwedenEvidence from Sweden
Evidence from Sweden
Sam Tavassoli
Sam TavassoliSam Tavassoli
Sam Tavassoli
a,b
and Michae
MichaeMichae
Michaela Trippl
la Tripplla Trippl
la Trippl
c
a
School of Management, RMIT University, Melbourne, Australia
b
Centre for Innovation, Research and Competence in the Learning Economy (CIRCLE), Lund
University, Lund, Sweden
c
Department of Geography and Regional Research, University of Vienna, Vienna, Austria
Abstract
This paper seeks to provide novel insights into the effects of ethnic communities on immigrants’
entrepreneurial activities. We investigate to what extent the decision of an employed immigrant
to become an entrepreneur is associated with his or her embeddedness in ethnic networks in the
host region. We capture such embeddedness through various mechanisms. Using longitudinal
registered-data from Sweden and employing a Logit model, we find that merely being located
in an ethnic community does not have an influence on immigrant entrepreneurship; rather what
matters is being located in ethnic communities that have a high share of entrepreneurs
themselves.
Keywords
: Immigrants, entrepreneurship, ethnic communities, embeddedness, social capital
JEL Codes
: J61; M13; D83

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1. Introduction
This paper examines the relationship between immigrant entrepreneurship and ethnic
communities (ECs). Several studies have shown that ECs provide a fruitful environment for
immigrant entrepreneurship (e.g. Light et al, 1993; Kloosterman et al. 1999; Rodríguez-Pose
and Von Berlepsch, 2014). However, little efforts have so far been made to disentangle various
mechanisms by which ECs foster immigrant entrepreneurship and to establish greater clarity
about who exactly within such communities contributes to nurturing business ventures by
immigrants. Is it anybody within the EC or is it a particular group (e.g. immigrants who are
already entrepreneurs themselves)? Moreover, most work on immigrant entrepreneurship is
based on case studies of certain ethnic groups, and when there are comparative case studies of
various ethnic minorities, the results are usually provided for a single region (Min and
Bozorgmehr, 2000; Raijman and Tienda, 2000; Zhou, 2004). This limits the generalizability of
findings. Hence, there is a need for systematic studies of all immigrants in all regions of a
country. The topic under consideration is also timely and relevant from a practical point of
view, since the EU (and particularly Sweden)
1
, has faced an immigrant crisis recently. In 2015
alone, about 190,000 asylum-seekers have arrived in Sweden, posing big integration challenges.
Entering the job market and promoting employment through entrepreneurship is seen as an
efficient way for integration. This paper aims to tackle this issue by investigating what factors
enhance immigrant entrepreneurship in Sweden.
Relying on the ‘mixed embeddedness’ concept (Kloosterman et al. 1998; 1999; Kloosterman,
2010; Jones et al, 2014), we analyse the effect of immigrants’ embeddedness into an EC in the
host region
2
on their decision to become entrepreneurs. We explicitly account for not only the
general social and market interactions of immigrants within their EC (as a proxy for the
embeddedness of immigrants into the social network of a community), but also for the
occupational structure of the EC itself (as a proxy for the embeddedness of immigrants into the
socio-economic and politico-institutional context of the host region). This way, our conceptual
framework not only goes beyond the ‘human capital argument’ in the entrepreneurship
literature (Davisson and Honig, 2003; Parrilli, 2009), but also it incorporates various
mechanisms of social capital provided by ECs.
1
The recent immigrant/refugee crisis in the EU poses challenges on Sweden in particular, due to its generous
refugee policy in comparison to most of its neighboring countries.
2
The host region is captured by the municipality in which a given immigrant is located (see Section 4.2).

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Using rich longitudinal registered-data in Sweden covering the population of all immigrant
individuals during the years 2003-2010, we find that immigrants show a higher propensity to
start their own businesses if they are located in ECs that feature the following characteristics:
(i) ECs that have a high share of ‘same ethnics-same sector employment’ as the focal immigrant,
and (ii) ECs that have a high share of ‘same ethnics-same sector entrepreneurs’ as the focal
immigrant. The strongest effect is found in the latter one. This is because immigrant
entrepreneurs may rely not only on the social capital and a potential customer group of their
ECs, but also they may benefit know-how available within their ECs of how to start a business
in the host region/country as well as role mode effect.
The rest of the paper is organised as follows: section 2 reviews the literature on the role of ECs
in fostering immigrant entrepreneurship and provides the conceptual framework. This is
followed by the development of our hypotheses. Section 3 describes the data and provides
descriptive statistics. Section 4 elaborates on the empirical strategy and defines the set of
variables employed in our empirical analysis. Section 5 reports and discusses the empirical
results. Finally, section 6 concludes.
2. Literature Review, Conceptual Framework & Hypotheses Development
Immigrants are increasingly seen as an important source of growth and prosperity, boosting
development and innovation in their host regions and countries (Hunt and Gauthier-Loiselle;
2012; Rodríguez-Pose and Von Berlepsch, 2014; Kerr et al., 2015). There is a strong interest in
academic and policy circles in immigrant entrepreneurship (Aldrich and Waldinger, 1990;
Clark and Drinkwater, 2010; OECD, 2010). Most of these studies can be categorized into two
groups: first, many of them are based on case studies of a certain ethnic group, and when there
are comparative analyses of various ethnic minorities, the results are usually confined to a single
region (Min and Bozorgmehr, 2000; Raijman and Tienda, 2000; Zhou, 2004). This limits the
generalizability of findings. Second, some studies are based on analyses covering more than
one region. However, more often than not their focus is on skilled immigrants in the US (Hunt
and Gauthier-Loiselle; 2012; Kerr et al., 2015). Systematic evidence from other countries and
lower-skilled immigrants is missing.

Frequently asked questions

Q1. What are the key factors in the decision to undertake an entrepreneurial endeavour?

access to sufficient capital and a reliable supply and customer base are often key factors in the decision to undertake an entrepreneurial endeavour. 

Q2. Why is the relative return to entrepreneurship reduced with age?

This is because with increasing age, the value of benefiting from ‘future’ money earned through starting a business diminishes, i.e. the relative return to entrepreneurship is reduced, the older an individual becomes. 

Q3. What does it mean to have social interactions with a particular group of immigrants?

What really matters is having social interactions with a particular group of immigrants: (i) those who are equipped with the know-how about the industry the focal immigrant has chosen for starting his/her own business; and, even more importantly (ii) immigrants who are already entrepreneurs themselves, since they can provide knowledge about the institutional context of the host region (more precisely, knowledge required to start abusiness. 

Q4. What is the role of ECs in entrepreneurship?

More specifically, ECs provide potential entrepreneurs with network resources that support new venture creation (Light et al, 1993; Hoang & Antoncic, 2003). 

Q5. What is the key issue that remains under-researched?

A key issue that remains however under-researched concerns the role played by ECs in immigrants’ decisions to become entrepreneurs. 

Q6. Why do immigrant entrepreneurs benefit from the social capital of their ECs?

This is because immigrant entrepreneurs may rely not only on the social capital and a potential customer group of their ECs, but also they may benefit know-how available within their ECs of how to start a business in the host region/country as well as role mode effect. 

Q7. What is the need to disentangle effects of being embedded in an EC?

There is a need to disentangle various effects that might result from being embedded in an EC in the host region and to assess their importance for immigrant entrepreneurship. 

Q8. What is the effect of having easy access to such institutional knowledge?

Having easy access to such institutional knowledge would in turn imply a better ‘embeddedness’ of the focal immigrant into the host region, which eventually can lead to a higher propensity of an immigrant to successfully establish his/her own business (Kloosterman et al.