Neighborhood Segregation and Black Entrepreneurship
20 Pages Posted: 28 Aug 2016 Last revised: 30 Nov 2017
Date Written: February 9, 2017
Abstract
We examine the causal effect of neighborhood segregation on black entrepreneurship. We address neighborhood sorting by analyzing city averages and omitted variable bias by instrumenting for segregation using historical railroad configurations. We find that segregation has a significant positive effect: a 10 percentage point increase in the dissimilarity index decreases the racial gap by about 3.3 percentage points. To minimize the effect of cross-city sorting, we use a narrower sample constructed from outcomes of young adults and find a similar effect. Our findings are important because historically, entrepreneurship has been an avenue out of poverty, and entrepreneurship has been promoted as a way to decrease welfare and unemployment.
Keywords: Segregation, Inequality, Entrepreneurship, Self-employment
JEL Classification: D63, J15, L26, R12, R30
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