Social capital and local cultural milieu for successful migrant entrepreneurship

Abstract

This paper investigates the cultural gravity mechanism behind the bonding and bridging effects on the performance of migrant entrepreneurship in the Netherlands. The culture-based development gravity approach – suggesting a joint interaction of individual cultural capital and local cultural milieu as a critical factor for local development – will be operationally translated into a model on bonding and bridging preferences of migrant entrepreneurs. A logit model is employed to estimate a culturally augmented standard production function, in which the dependent variables are alternatively a high-profit or increased turnover and in which the independent variables are – in addition to the standard input factors – also the interaction terms of, respectively, bonding and bridging with local cultural milieu. Different specifications of the estimated model, controls for clustering effects and two modifications of the data-set are used to achieve the best extraction of information from the available data-set and to cope with its limitations. We find that bonding is positive in the context of a culturally closed local milieu; yet, this approach secures mostly profits, but is less likely to generate economies of scale for the enterprise. The most interesting result is that the choice to be rather ethnically locked in (i.e. a bonding preference), due to heuristically following the ‘role model’ imposed by the choice of the other migrant entrepreneurs in the locality, has a significantly negative association with the success of the migrant entrepreneur.