Social Networks, Ethnicity, and Entrepreneurship

William R. Kerr, Martin Mandorff

NBER Working Paper No. 21597
Issued in September 2015
NBER Program(s):   LS   PR

We study the relationship between ethnicity, occupational choice, and entrepreneurship. Immigrant groups in the United States cluster in specific business sectors. For example, Koreans are 34 times more likely than other immigrants to operate dry cleaners, and Gujarati-speaking Indians are 108 times more likely to manage motels. We develop a model of social interactions where non-work relationships facilitate the acquisition of sector-specific skills. The resulting scale economies generate occupational stratification along ethnic lines, consistent with the reoccurring phenomenon of small, socially-isolated groups achieving considerable economic success via concentrated entrepreneurship. Empirical evidence from the United States supports our model's underlying mechanisms.