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Why Are There So Few Black Entrepreneurs?

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  • Bruce D. Meyer

Abstract

Black entrepreneurship has been unsuccessful in the U.S. The fraction of employed blacks that work in their own businesses is about one-third that of whites. Other measures of success such as net income, number of employees, and form of organization show large differences between blacks and whites. This paper examines explanations for these differences, particularly focusing on the frequently cited economic explanations of liquidity constraints and consumer discrimination. Liquidity constraints are examined by estimating logit equations for who is self-employed in a cross-section and who becomes self-employed in a panel. These estimates suggest that net worth is not an important determinant of the racial differences in self-employment. An examination of small business starting capital indicates that little capital is needed to start most business and beginning entrepreneurs do not usually borrow. Examining the industrial distribution of black and white businesses, I do not find a greater relative representation of blacks in industries requiring less starting capital. I also examine if black businesses are relatively more common in industries where white customers more frequently patronize black businesses. Little support is found for this hypothesis. I conclude that cultural differences may explain black/white differences in self-employment, but this explanation requires further study.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3537.

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Date of creation: Dec 1990
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Handle: RePEc:nbr:nberwo:3537

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  1. Timothy Bates, 1985. "Entrepreneur Human Capital Endowments and Minority Business Viability," Journal of Human Resources, University of Wisconsin Press, vol. 20(4), pages 540-554.
  2. Timothy Bates, 1985. "Impact of preferential procurement policies on minority-owned businesses," The Review of Black Political Economy, Springer, vol. 14(1), pages 51-65, June.
  3. Victor R. Fuchs, 1982. "Self-Employment and Labor Force Participation of Older Males," Journal of Human Resources, University of Wisconsin Press, vol. 17(3), pages 339-357.
  4. Richard Stevens, 1984. "Measuring minority business formation and failure," The Review of Black Political Economy, Springer, vol. 12(4), pages 71-84, March.
  5. Blanchflower, D. & Oswald, A., 1990. "What Makes A Young Entrepreneur?," Papers 373, London School of Economics - Centre for Labour Economics.
  6. Blau, Francine D & Graham, John W, 1990. "Black-White Differences in Wealth and Asset Composition," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 321-39, May.
  7. Alfred R Nucci, 1989. "The Characteristics of Business Owners (CBO) Database," Working Papers 89-9, Center for Economic Studies, U.S. Census Bureau.
  8. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-35, June.
  9. Coate, Stephen & Tennyson, Sharon, 1992. "Labor Market Discrimination, Imperfect Information and Self Employment," Oxford Economic Papers, Oxford University Press, vol. 44(2), pages 272-88, April.
  10. George J. Borjas & Stephen G. Bronars, 1989. "Consumer Discrimination and Self-Employment," NBER Working Papers 2627, National Bureau of Economic Research, Inc.
  11. Timothy Bates, 1989. "The changing nature of minority business: A comparative analysis of asian, nonminority, and black-owned businesses," The Review of Black Political Economy, Springer, vol. 18(2), pages 25-42, September.
  12. George J. Borjas, 1986. "The Self-Employment Experience of Immigrants," Journal of Human Resources, University of Wisconsin Press, vol. 21(4), pages 485-506.
  13. Rees, Hedley & Shah, Anup, 1986. "An Empirical Analysis of Self-employment in the U.K," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(1), pages 95-108, January.
  14. George J. Borjas, 1986. "The Self-Employment Experience of Immigrants," NBER Working Papers 1942, National Bureau of Economic Research, Inc.
  15. Faith Ando, 1988. "Capital issues and the minority-owned business," The Review of Black Political Economy, Springer, vol. 16(4), pages 77-109, March.
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