A Multi-level Empirical Study of Ethnic Diversity and Shadow Economy as Moderators of Opportunity Recognition and Entrepreneurial Entry in Transition Economies

Abstract

Our multi-level model about the relationship between opportunity recognition and entrepreneurial entry in transition economies suggests that ethnic fractionalization along with the size of the shadow economy are moderators of individual-level opportunity recognition. Whereas ethnic diversity increases entrepreneurial entries, a large informal sector appears to decrease them. We also find that opportunity recognition may be a more important predictor of entry when ethnic diversity is low and when the shadow economy is small. Thus, our study contributes to the literature examining the influence of contextual factors on entrepreneurial entry. Succinctly, ethnic diversity can substitute for opportunity recognition, whereas the informal economy increases its importance. Consequently, it appears that ethnic heterogeneity in transition economies may be a valuable driver of entrepreneurial entry even in the absence of opportunity recognition, while the size of the informal economy makes opportunity recognition dearer.