2.1 Are immigrants really more entrepreneurial than natives?
Within debates on migration and development, migrants are often expected to be super-entrepreneurs who will benefit development in home and destination countries through their greater prowess as entrepreneurs, their remittances, their trans-national entrepreneurial activity and their business acumen. Proponents of this view have pointed to the successes of migrant entrepreneurs in China and the USA to argue that migrants may not need formal wage jobs. For instance, it has been pointed out that in successful developing countries, such as China, 25 % of migrants are self-employed (Giulietti et al. 2012). Saxenian (2002, 2006) and others have praised the role of immigrants in the development of Silicon Valley, where close to one third of the technology businesses were operated by immigrant owners by the end of the 1990s.
Why are migrant entrepreneurs seen as super-entrepreneurs? The main argument is based on selection. Migrant entrepreneurs may be less risk averse, as is evident in their decision to migrate, itself a risky activity (Neville et al. 2014). And they have been argued to be more able to spot opportunities for new businesses as they already spotted opportunities for migration (Hart and Acs 2011). Migrants are also seen to have access to supplementary sources of support, training and financing, as often migrants increase their educational level and/or gain new skills, save more money and extend their social network while living abroad (de Haas 2006; OECD 2008).
Despite these a priori reasons for seeing migrant entrepreneurs as super-entrepreneurs, and in fact being more entrepreneurial than natives, the empirical evidence is not strong. For instance, a recent OECD (2010) review finds that migrant entrepreneurship, measured by self-employment rates, is more common than non-migrant entrepreneurship in only 13 out of 25 countries in the OECD. In other words, in about half of these OECD countries, migrants are less likely than natives to be self-employed. Moreover, in the countries with larger immigrant populations, such as Germany, Italy, Spain, Switzerland and The Netherlands, migrants are much less likely than natives to be self-employed (OECD 2010). In the case of migrants in Germany, Brixy et al. (2013) even find that migrants believe less often that they have the necessary skills to run a business and that they were not more risk averse than non-migrants. And in the case of The Netherlands, Jansen et al. (2003) find the rate of entrepreneurship amongst the native Dutch population as well as of the Turkish immigrant population to be almost twice as high as amongst immigrant populations from Morocco, Suriname and the Antilles.
The only study to compare start-up rates (early entrepreneurial activity) amongst migrants and non-migrants across countries is the 2012 Global Entrepreneurship Monitor (GEM). It finds that rates of early entrepreneurial activity (start-up rates) are similar between migrants and non-migrants and that start-up rates of migrants are just as heterogeneous across countries as that of non-migrants. For instance, the GEM finds that only 1.8 % of early entrepreneurial activity in Sub-Saharan Africa is undertaken by first generation migrants, while the corresponding share is 11 and 10 % in the USA and Western Europe, respectively (Vorderwülbecke 2012).
Self-employment per se may, however, be a poor measure of entrepreneurship. Many argue that what fundamentally characterizes entrepreneurs is their innovativeness, their creative destruction to use Schumpeter’s term. So how well do migrant entrepreneurs do in terms of innovation? It has been pointed out that migrant entrepreneurs may be disproportionately represented, at least in the USA, amongst high-growthFootnote 2 and highly innovative enterprises (OECD 2011; Saxenian 2002; Wadhwa et al. 2007) and biotech firms (Stephan and Levin 2001) as well as public venture-backed US companies (Anderson and Platzer 2006) and high-impact companies (Hart and Acs 2011). In addition, on average, 20 % of migrant-owned enterprises in the 2012 GEM survey expected to create ten or more jobs in the next 5 years, compared to only 14 % of non-migrant-owned enterprises (Vorderwülbecke 2012).
As far as innovation is concerned, around 16 % of high-tech firms in a recent US sample had a migrant owner and, moreover, a migrant owner with skills in science and engineering (Hart and Acs 2011). Hunt and Gauthier-Loiselle (2010), using US patent data, find that “immigrants account for 24 [per cent] of patents, twice their share in the population, and that the skilled immigrant patenting advantage over natives is entirely accounted for by immigrants’ disproportionately holding degrees in science and engineering fields” (Hunt and Gauthier-Loiselle 2010: 33). Despite the clear contributions that migrant entrepreneurs have made to innovation in the USA, Hart and Acs (2011) cannot find evidence that migrant owned high-tech firms in the USA are more likely to register patents or spend more on research and development than firms owned by natives. Supporting this point, the survey by Hart and Acs (2011) of high-tech entrepreneurship (the most innovative form of entrepreneurship) in the USA concluded that “most previous studies have overstated the role of immigrants in high-tech entrepreneurship” (Hart and Acs 2011: 116).
The 2012 GEM survey attempted to measure the innovation of enterprises across 69 countries using the number of new products or services they introduced, taking into account whether the enterprises in question were owned by a migrant or non-migrant. Analyses of the survey results could not find significant differences between the innovativeness of migrant and non-migrant entrepreneurs (Vorderwülbecke 2012).
As a final measure of the entrepreneurial prowess of migrants, one may compare the average performance of migrant enterprises to that of non-migrants. Using performance measures such as sales growth and profits from new Canadian start-ups, Neville et al. (2014) find that migrant enterprises are not generally better performing than those of non-migrants and that very often immigrant-owned firms underperformed. Only in the case of migrant firms that export do they find superior performance, suggesting that these migrant firms may have better international networks. The usual suspects in firm performance such as experience, skills, gender, access to finance and growth orientation were found to apply in equal measure to both migrant and non-migrant enterprises. Similarly, Dai and Lui (2009) find that in the case of China’s Zhongguancun Science Park (ZSP), return migrants who export more, due to their international networks, performed better than non-migrants.
Saxenian (2002, 2006) and others have argued that the development of high-tech sectors and innovation clusters in countries such as China, India and Taiwan resulted due to the return migration of entrepreneurs (transnational entrepreneurs) from places like Silicon Valley and elsewhere in the USA. More recently, Kenney et al. (2012) challenged this interpretation, concluding from a historical overview of the creation and establishment of ICT industries in these countries that return migrants were not critical in their establishment. They conclude that the roles of native entrepreneurs and governments were more essential for the emergence and establishment of these industries than return migrants and that “[t]he importance of the returnees is more likely in […] deepening home country industrial development and connections to the U.S. economy” (Kenney et al. 2012: 395).
2.2 Are migrant remittances likely to fund entrepreneurship in their home countries?
In the new economics of labour migration (NELM), the decision to migrate is seen as not only a decision an individual makes but also a decision that is taken at the household level to deal with risks, market imperfections and obstacles in their environment. If, for instance, a lack of liquidity and/or poorly functioning financial markets obstruct households to establish business enterprises, migration of some family members and their remittances may be a way of overcoming these financial constraints, making it possible for them to invest in agricultural innovations, land and housing, or small businesses (Lucas and Stark 1985).
The literature on the impact of remittances on development contains controversial findings. On the one hand, there exists a somewhat pessimistic view of the role of remittances, recognizing negative effects such as moral hazard (Chami et al. 2005) as well as exchange rate appreciation and reduced export competitiveness (Amuedo-Dorantes and Pozo 2004; Bourdet and Falck 2006). On the other hand, a more optimistic view emphasizes that remittances can contribute to poverty reduction, consumption smoothing and household expenditures (Acosta et al. 2007; Adams 2006). Remittances can also raise household spending on education (Acosta et al. 2007; Cox Edwards and Ureta 2003) and health services (Hildebrandt and McKenzie 2005; Mansuri 2007). In addition, part of remittances that are received by households may be used for savings or investments (de Haas 2005). Giuliano and Ruiz-Arranz (2009) show that in some countries with underdeveloped financial systems, remittances are used to overcome credit and liquidity constraints and are invested into small business development. They find that when the development of the financial sectors is lower, the contribution of remittances to economic growth is stronger (Giuliano and Ruiz-Arranz 2009).
The empirical evidence on the effectiveness of remittances to encourage entrepreneurship in migrant sending countries is, however, also mixed. For instance, Amuedo-Dorantes and Pozo (2004) show that in the case of the Dominican Republic, receiving remittances does not lead to an increased likelihood of owning a business, but rather the opposite. Remittance receipt is associated with a reduced likelihood of business operations. It has also been observed that households, who already operate a business, are more likely to receive remittances from abroad (Amuedo-Dorantes and Pozo 2004). Vasco (2013), studying migration and remittances in the case of rural Ecuador finds that “neither migration nor remittances have any effect on the odds of a household owning a rural business” (Vasco 2013: 37). Ang et al. (2009) also do not find a significant effect of remittances on productive investments in the Philippines.
In the case of Mexico, on the other hand, remittances have been found to be a significant source of capital for microenterprises (López-Córdova and Olmedo 2006). Investments in businesses are increasingly seen in Mexican households and communities receiving remittances from the USA (Massey and Parado 1998). Woodruff and Zenteno (2007) also find that small and medium enterprises in Mexico benefit financially from having links to migrant networks in the USA and that in the case of high-tech firms, they grow faster as a result, suggesting that migrant networks can alleviate financial constraints. In the case of Nicaragua, Funkhouser (1992) establishes that remittances have a small positive effect on self-employment in receiving households. In El Salvador, in contrast, remittances did not seem to impact self-employment activities in a household survey conducted in 2000. International remittances were, however, significantly and positively associated with business ownership. These effects were particularly strong in rural areas and amongst females (Acosta 2007).
Yang (2008) estimates the responses of Filipino households to economic shocks in the destination country of migrated household members. He shows that a positive shock leads to increased levels of investment in entrepreneurship in the origin households. Vaaler (2011) finds evidence that remittances support venture capital funds and firm start-ups in home countries, especially when they come from migrants living in migrant communities abroad. The effects decrease when the remittances are sent by highly educated migrants (Vaaler 2011).
Besides the direct use of remittances for business investments, remittances might also indirectly contribute to the ability of a recipient household to engage in business activities. A stable remittance income may be considered a positive attribute in the evaluation of creditworthiness of a household when it comes to accessing microloans or small business loans (Ratha 2007). Especially in contexts where households face high-income volatility and shocks otherwise, remittances can also favour income smoothing and as such make households more attractive borrowers (Mohapatra et al. 2011).
Overall, however, most of the literature on development and migration seems to concur that remittances are largely used to fund consumption (de Haas 2010), which is not necessarily a bad thing for households in the poorest countries (Yang 2011). Whether remittances are used for business investments and self-employment activities is highly dependent on the context as is shown by the mixed evidence on the relationship between the two. It seems that it matters where the remittances come from, where they go and who is then responsible for the way they are used in the receiving household. As such, more research is necessary in order to really understand the interactions between remittances and entrepreneurship and to establish under what conditions migrant remittances are likely to fund entrepreneurship in their home countries.
2.3 Are return migrants more likely to be entrepreneurial than non-migrants?
While there is a growing literature on the development impacts of the rising flows of remittances to poorer countries, it is only fairy recently that attention has been paid to the potential of return migrants to start up enterprises in their home countries. This reflects the greater awareness of the fact that most migration is not permanent, but temporary (Mesnard 2004). Hence, migrants may learn while away from their home country or region, as well as gather savings and build foreign networks, all of which may alleviate constraints on starting a new enterprise upon return (Marchetta 2012; Rapoport 2002). However, while abroad, migrants may lose contact with their networks at home and hence experience a depreciation of their social capital, which may make it more difficult to establish a new enterprise upon return. Accordingly, to the extent that credit constraints and a lack of skills and experience are obstacles to entrepreneurship in developing countries, and social capital is not as crucial, one may expect return migrants to be more likely to be able to start up new firms than non-migrants (Wahba and Zenou 2012).
How valid is this expectation? Black and Costaldo (2009) report that the literature is not unambiguously supporting this expectation and, moreover, that the types of businesses started up by return migrants most often do not have a significant development impact. Gibson and McKenzie (2012) find microeconomic evidence from five developing countries that return migration is common and that although return migrants share gained knowledge, they are not more productive as entrepreneurs or in wage labour back home than non-migrants.
There are several studies investigating differences in entrepreneurial activities between return migrants and non-migrants. The most common finding relates to financial capital, and more specifically, the role of savings accumulated abroad in the launch of a small business upon return. For instance, both Arif and Irfan (1997) and Piracha and Vadean (2010) find strong indication that return migrants are more likely to be self-employed in business in comparison to non-migrants in Pakistan and Albania, respectively. Using data from Ghana and Côte d’Ivoire, Black and Costaldo (2009) find that return migrants are more likely to start a new enterprise if they had accumulated savings and stayed abroad longer. This trend was found to be stronger amongst poorer migrants. They also find any formal education received by migrants while abroad to be insignificant for the entrepreneurship decision once they have returned. Similar results were obtained for Bosnia-Herzegovina, Bulgaria, Georgia, the Kyrgyz Republic, Romania and Tajikistan by Lianos and Pseiridis (2009) and by McCormick and Wahba (2001) for Egypt. Ilahi (1999), Dustmann and Kirchkamp (2002) and Mesnard (2004) arrive at a similar conclusion showing return migrants are particularly prone to invest savings from abroad in business ventures back home, suggesting temporary migration may at times be employed as a strategy to overcome credit constraints faced in the country of origin.
In the case of rural to urban migration in China, Démurger and Xu (2011) find that return migrants were more likely than non-migrants to start up an enterprise and that the likelihood of this was enhanced by the amount of savings accumulated and the experience gained as measured by the frequency of job changes. Also for China, Giulietti et al. (2013) find that not only return migrants are more likely than non-migrants to start up a business but also they promote entrepreneurship amongst family members who did not migrate, suggesting that knowledge and experience may be skills required in China’s rural areas to stimulate entrepreneurship.
Wahba and Zenou (2012), using migration data from Egypt, also find that experience, savings and duration abroad matter and that the loss of social capital due to being out of the country does not outweigh the benefits of finance and experiences in starting up a firm. Their evidence indicates that return migrants could indeed be more likely to become self-employed; however, they do recognize that the decision of a migrant to return could be a decision made simultaneously to that of becoming an entrepreneur, which would upwardly bias the propensity of return migrants to be found in entrepreneurship; they find evidence of such an upward bias in their data (Wahba and Zenou 2012). Similar evidence of bias, and of the simultaneity in the decisions to migrate and become entrepreneurial, is found by Batista et al. (2014) in the case of return migration in Mozambique.
Problems faced by studies into the occupational choice of return migrants and the probability that they enter into entrepreneurship are often caused by endogeneity and simultaneity in the decisions to migrate and to start a new enterprise and due to the fact that the total population of return migrants is not available. Little has been done in the way of controlled (or natural) experiments, and properly matched panel data is still scarce, although a number of studies have used bivariate probit models and instrumental variable methods to deal with endogeneity issues. As a result of these shortcomings and given the relatively few studies on the topic, a recent survey on migration and development concluded that there is still much scope for further research on the determinants and impacts of return migration and entrepreneurship (Gurgand et al. 2012).