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How does cultural diversity affect entrepreneurship? In this paper Elena Nikolova, Research Economist at the EBRD, and Dora Simroth, doctoral student at the European School of Management and Technology, study the effect of religious and linguistic diversity in a given locality on individual entrepreneurial behaviour, and find that cultural diversity and entrepreneurship follow an inverted U-shaped pattern.
Low to intermediate levels of diversity benefit entrepreneurs who can draw on a large pool of complementary network contacts. However, as cultural differences within a community reach a threshold level, the costs of sustaining collaboration for entrepreneurs outweigh the benefits.
They analyse both the attempt to establish an entrepreneurial business and success of entrepreneurs and also argue that the two types of diversity matter at different stages of entrepreneurship.
This paper uses a new survey data set that covers more than 30,000 households in eastern Europe and Central Asia (the Life in Transition Survey 2010).