Residential Segregation and Ethnic Enterprise in U.S. Metropolitan Areas

In this paper, we specify and estimate a model of minority group entrepreneurship that incorporates individual, household, and metropolitan-level factors. Among the metropolitan factors we consider is residential segregation, which might be thought to enhance business opportunities by concentrating demand and creating protected market niches. Whereas some degree of geographic concentration may be beneficial for certain types of entrepreneurship, higher levels of residential segregation are likely to be detrimental to entrepreneurial endeavors because of the tendency for segregation to interact with skewed minority income distributions to concentrate poverty geographically. Using data from the 1990 U.S. Census, we estimate a model to measure the effect of segregation on the likelihood of entrepreneurship among different racial/ethnic groups in U.S. metropolitan areas. We find that beyond very moderate levels, segregation actually works to lower the odds of entrepreneurship.