From Rags to Riches: How Robust is the Influence of Culture on Entrepreneurial Activity?

Abstract

Entrepreneurial activity differs substantially across countries. While cultural differences across countries have often been proposed as an explanation, measuring a country's cultural characteristics suffers from various problems. This paper offers new evidence on the relative importance of cultural and institutional determinants of economic activity. In order to test the hypothesis that cultural factors influence entrepreneurial behavior, we observe differences in self-employment rates between immigrant groups within the same market. This approach allows holding constant the institutional environment. Using U.S. Census data for the year 2000, we find significant differences in the propensity to become self-employed across immigrants from 148 countries which is in line with previous findings. However, previous studies could not relate self-employment rates in the U.S. to self-employment shares in the immigrants' home-countries, contradicting a cultural explanation. We improve over the existing literature by additionally accounting for determinants of self-employment in the immigrants' home countries. We find evidence of a significantly positive relationship between self-employment rates of U.S. immigrants and entrepreneurial activity in their respective countries of origin that is robust to the inclusion of further variables, including institutions. We also find, however, a significant influence of home-country institutions on differences in immigrant activities. Our findings suggest that cultural factors (measured as behavioral persistence) are to some degree an expression of the behavior acquired under different institutional environments.