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Consumer Demand and Credit Supply as Barriers to Growth for Black-Owned Startups

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Abstract

We formulate a framework showing that differences in capital returns and capital intensity between groups of firms can identify relative differences in consumer demand and credit constraints. Using micro-data on Black- and White-owned startups, we find robust evidence that Black-owned startups have lower capital returns, implying that Black-owned startups face lower consumer demand due to race. In contrast, we find mixed evidence of tighter credit constraints due to race. We further show that differences in capital returns are persistent over time, whereas capital intensity differences are transitory. This suggests that lower demand, rather than credit constraints, might be the main barrier to growth for Black-owned startups.

Suggested Citation

  • Eugene Tan & Teegawende H. Zeida, 2023. "Consumer Demand and Credit Supply as Barriers to Growth for Black-Owned Startups," Opportunity and Inclusive Growth Institute Working Papers 079, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmoi:97508
    DOI: 10.21034/iwp.79
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    References listed on IDEAS

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    1. Ilyana Kuziemko & Ebonya Washington, 2018. "Why Did the Democrats Lose the South? Bringing New Data to an Old Debate," American Economic Review, American Economic Association, vol. 108(10), pages 2830-2867, October.
    2. Robert Fairlie & Alicia Robb & David T. Robinson, 2022. "Black and White: Access to Capital Among Minority-Owned Start-ups," Management Science, INFORMS, vol. 68(4), pages 2377-2400, April.
    3. Timothy Bates & William D. Bradford & William E. Jackson, 2018. "Are minority-owned businesses underserved by financial markets? Evidence from the private-equity industry," Small Business Economics, Springer, vol. 50(3), pages 445-461, March.
    4. Kakar, Venoo & Voelz, Joel & Wu, Julia & Franco, Julisa, 2018. "The Visible Host: Does race guide Airbnb rental rates in San Francisco?," Journal of Housing Economics, Elsevier, vol. 40(C), pages 25-40.
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    More about this item

    Keywords

    Discrimination; Investment; Entrepreneurship;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination

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