Connecting Remittances and Entrepreneurship in Mexico:Financial Resources and Social Institutions

Abstract

Three main obstacles to entrepreneurship in Mexico have been identified: (1) limited access to reasonably priced financing, (2) shortage of skilled and educated labor, and (3) a lack of social and institutional support for entrepreneurial activity. Tapping a comprehensive survey of individuals crossing the U.S.-Mexican border between 2004-2008, our study investigates the combined role of remittances and migrant experience in overcoming these obstacles. Indicative of the value of remittances in easing financial constraints, we find that the likelihood that remittances are used for entrepreneurial activities increases with the absolute level of remittances (total dollars sent back). Controlling for pre-migration attributes, we also find that cross-border work experience may reduce the remaining entrepreneurial obstacles as migrants who gain human capital through on-the-job training while working in the U.S. and those who are exposed to an entrepreneurial-supportive social context via employment in entrepreneurial firms in the U.S. are more likely to employ remittances for entrepreneurial activities. Recent studies have shown a high-level of entrepreneurship by foreign-born professionals who return to their native country after working in the United States. Our study adds to this literature providing initial evidence that this phenomenon also holds for lesser skilled returnees.