Causes and Consequences of Entrepreneurship: An Alternative Framework for Analysis

Existing research has identified cultural traits, ethnic solidarity, ethnic organization and a sojourning orientation as important cultural factors, and discrimination in the mainstream labor market, disadvantages associated with immigrant status (including lack of proficiency in the host society’s dominant language and lack of transferable professional skills and educational credentials) and the availability of unpaid family labor or low-paid coethnic labor as key structural factors (Bates 1998; Bonacich 1973; Evans 1989; Light 1972; Portes and Zhou 1992; Waldinger 1986). Other macrostructural factors, such as market conditions (size of coethnic and non-coethnic consumer markets) and access to ownership, are also determining factors, even when host societies outlaw racism and racial discrimination (Aldrich and Waldinger 1990).

While the literature has generated more consensus than controversies on what causes ethnic entrepreneurship, there are disagreements. One point of difference is the preference for coethnic labor. Many contemporary ethnic entrepreneurs depend on non-coethnic immigrant workers. Another point of disagreement concerns opportunity structures. Instead of responding to existing host market conditions, many contemporary ethnic entrepreneurs proactively create new opportunities. For example, the availability of low-skilled immigrant labor allows prospective entrepreneurs to develop new businesses in the lines of work that have already been outsourced abroad, such as the garment industry, or previously taken up by unpaid family labor, such as gardening, housecleaning and childcare. The availability of highly skilled immigrant labor has also become a new source of entrepreneurship in the growing high-tech sector that redefines the mainstream economy (Saxenian 2006).

Regarding the effects, existing research addresses how ethnic entrepreneurship is associated with outcomes, most notably economic returns. Yet the findings are mixed. Some researchers demonstrate strong empirical evidence that ethnic entrepreneurship yields a significant earnings advantage over other forms of employment controlling for observable human capital and demographic characteristics among ethnic minorities (Goldscheider 1986; Portes and Bach 1985; Portes and Zhou 1996).2 Others find that returns to human capital are significantly lower especially for immigrant groups that are highly skilled and more resourceful but lack English proficiency (Bates 1998; Borjas 1990). Nevertheless, there has been growing consensus on the findings about other positive effects. First, ethnic entrepreneurship creates job opportunities for the self-employed as well as for coethnic workers who would otherwise be excluded from the mainstream labor market (Butler 1991; Light 1972; Portes and Zhou 1992; Spener and Bean 1999; Zhou 1992). Second, ethnic entrepreneurship fosters an entrepreneurial spirit, sets up role models and offers training opportunities for prospective entrepreneurs within an ethnic community (Bailey and Waldinger 1991). Third, ethnic entrepreneurship buffers its impact on the larger labor market, relieving sources of potential competition among native-born workers and enhancing the economic prospects of group members as well as of out-group members (Portes 1994; Portes et al. 1999; Portes and Zhou 1996; Spener and Bean 1999; Zhou 2004a).

There are several gaps in the existing literature. First, it has often assumed that entrepreneurship is a forced choice for immigrants who have resettled in another country. We suggest that ethnic entrepreneurs, low- and highly skilled alike, do not react merely to constraints on the individual in the host country or unfavorable circumstances in the context of reception but also to multilayered opportunities in the diaspora, the homeland and the transnational social fields. Those with bicultural literacy, binational work experiences and access to transnational networks are more likely than others to act as agents to initiate and structure global transactions (Mata and Pendakur 1999; Popkin 1999; Portes and Guarnizo 1991). Second, the existing literature has focused on the role of entrepreneurship in individual outcomes but overlooked its effect on community formation and development. We suggest that ethnic businesses constitute the economic basis of the diasporic community and that immigrant entrepreneurs contribute to further strengthening that basis by growing the ethnic economy within and beyond the ethnic enclave. Third, the existing literature has overlooked the effect of diasporic development by way of entrepreneurship on migrants’ integration

Immigrant entrepreneurship and diasporic development

Fig. 18.1 Immigrant entrepreneurship and diasporic development: a framework for analysis

into the host society. Immigrants’ active involvement with their homelands and sending states’ enthusiastic promotion of transnational entrepreneurship among compatriots are regarded as creating barriers to integration.

We aim to address the gaps in the existing research by analyzing Chinese immigrant entrepreneurship in the USA. Figure 18.1 presents an alternative framework for analysis. We consider immigrant entrepreneurship to be an important driver for diasporic development, on which structural circumstances in both sending and receiving countries have an impact. Entrepreneurship, facilitated by transnational practice and promoted by homeland states, affects diasporic development both directly and indirectly. In turn, diasporic development positively affects migrant integration into the host society by generating economic and sociocultural opportunities.

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