The Contrasting Effects of Ethnic, Cultural and Immigrant Diversity on Entrepreneurship and Job Creation

Abstract

This paper is the first one to examine empirically whether ethnic, cultural and immigrant population diversity within countries is favourable for entrepreneurship and job creation. Building on existing, yet disjointed theories on diversity, the paper provides insights as to why different types of diversity may have different effects on entrepreneurship. We test our predictions using multilevel modelling and the Global Entrepreneurship Monitor survey of over 1.5 million people across 88 countries. We find that diversity boosts the number of start-ups and new businesses. Also, businesses hire more employees in countries that have a higher population share of skilled or unskilled immigrants due to skill complementarity. However, businesses are more likely to close down in countries with higher cultural or immigration diversity, likely due to market fragmentation. Our results show that small changes in diversity lead to significant changes in the probability of business survival and job creation. These results have important policy implications for countries seeking to toughen their immigration policies. Since societies will continue to become more diverse, considering the multiple dimensions of diversity will become ever more relevant for research and policymaking.