Ethnic diversity and small business venturing

While researchers have examined how ethnic diversity affects regional organizational performance, little research has been done to examine how ethnic diversity affects the creation of firm establishments for different sized firms. By generating additional market segments, in addition to fostering supply-side effects, we propose that a region's ethnic diversity fosters an environment that is conducive to the growth of small firm establishments but not medium- or large-sized establishments. Using county-level data on US firm establishments and ethnic diversity, we find that a one standard deviation increase in ethnic diversity is associated with a 6 to 8% increase in the number of small firm establishments and a 26-28% decrease in the number of large-sized firm establishments.