Positive local externalities of immigration on entrepreneurship: Evidence from the UK East Midlands region

Abstract

This article examines the effects of immigration on entrepreneurship, making a distinction between the individual level and the neighbourhood characteristics. The study combined individual level drawn from the Global Entrepreneurship Monitor data with neighbourhood level data for the English Index of Multiple Deprivation East Midlands region in the UK and applied a maximum likelihood logit model to test the hypotheses. The empirical evidence suggests that there is no direct link between the internal immigrants and start-ups on the one side; yet, there is direct link between the external immigrants and start-ups on the other side. However, the findings point to the importance of indirect effect of neighbourhood characteristics, as external immigrants have a significant effect on an individual’s perception of new entrepreneurial opportunities which predicts start-up activity. Their presence in the neighbourhood has a positive monotonic effect on individual entrepreneurship. Therefore, the critical factor is not that external immigrants come with unique knowledge and skills they utilise in the creation of their own businesses, instead they produce positive local externalities enabling others to start-up businesses.