The Role of the Local Business Climate for Self-Employment Among Immigrants - a Cross-Sectional Study Between Swedish Municipalities
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The role of the local business climate for self-employment among immigrants - A cross-sectional study between Swedish municipalities. BACHELOR THESIS WITHIN: Economics NUMBER OF CREDITS: 15 ECTS PROGRAMME OF STUDY: International Economics AUTHOR: Matilda Gustafsson, Joakim Olsson TUTORS: Lina Bjerke, Jonna Rickardsson JÖNKÖPING May, 2018. Bachelor Thesis in Economics Title: The role of the local business climate for self-employment among immigrants - A cross-sectional study between Swedish municipalities. Authors: Matilda Gustafsson & Joakim Olsson Tutor: Lina Bjerke & Jonna Rickardsson Date: May, 2018 Key terms: Self-Employment, Business Climate, Immigrants, Natives Abstract This study examines the relationship between the local business climate and the share of self- employed immigrants in Sweden on a municipal level. These results are then compared to the relationship between the local business climate and the share of self-employed natives. The study also compares the share of self-employed immigrants as well as natives that are still in business after one year. The variables that are used to assess the business climate have been used in previous research that has tested the impact of the business climate. The results show that regional differences in the business climate can explain differences in the share of self- employed immigrants to some extent. The results also show that while most variables are significant for both self-employed immigrants and self-employed natives, the business climate influences the share of self-employed natives more than the share of self-employed immigrants. This indicates that the functions in the local business climate can be more available to natives than to immigrants. The share of self-employed immigrants who are still in business after one year has an insignificant relationship with the local business climate, whereas the share of self- employed natives who are still in business after one year has a moderately significant relationship with the local business climate. Hence, the business climate influences regional differences in the share of self-employed who are still in business after one year more for natives than for immigrants. 2 Contents 1 Introduction .......................................................................................................................................... 4 2 Literature review .................................................................................................................................. 7 3 Methodology ...................................................................................................................................... 12 3.1 Data ............................................................................................................................................. 12 3.2 Dependent variables .................................................................................................................... 12 3.3 Independent variables .................................................................................................................. 13 3.4 Empirical model .......................................................................................................................... 17 3.5 Empirical method ........................................................................................................................ 19 4 Empirical results and analysis ............................................................................................................ 21 4.1 Descriptive statistics .................................................................................................................... 21 4.2 Regression results and analysis ................................................................................................... 22 5 Conclusions ........................................................................................................................................ 29 6 References .......................................................................................................................................... 31 7 Appendices ......................................................................................................................................... 34 3 1 Introduction The immigration inflow to Sweden has increased steadily over the last few years. The largest groups of people that migrate to Sweden today are fleeing from war, violence and oppression (Sweden Statistics, 2018). The steady increase of immigrants has given rise to a divided political debate. According to opinion polls from the Swedish newspaper Dagens Nyheter, immigration and integration is the dominating issue among Swedish voters in the forthcoming election in 2018 (DN, 2017). The level of employment among immigrants has been consistently lower than the level of employment for domestically born Swedes for over a decade (Statistics Sweden, 2017), showing that there are issues for immigrants to become assimilated into the Swedish labour market. Barriers in the labour market for immigrants are for instance discrimination, low levels of education and lack of social networks with natives which has been found to increase the probability of finding work (Bursell, 2012; Lundborg, 2013; Lindgren et al., 2010). During 2017, unemployment among immigrants decreased somewhat, but it was still several percentage points higher than that of native-born individuals (Statistics Sweden, 2017). In other words, there are structural integration issues for immigrants in Sweden. One solution to this problem, that was a popular political discussion in the 90s in Sweden, was that self-employment could resolve the issue of immigrants falling in to structural unemployment (Slavnic, 2013). There is also previous research that suggests that many immigrants are involuntarily becoming self-employed because they cannot enter the regular labour market (Ljungar, 2007). A report presented by the government confirms that this was the case in the 80s and 90s for many immigrants (SOU, 1999:49). Research finds that factors within the business climate affect entrepreneurship in Sweden, hence native entrepreneurs as well as immigrant entrepreneurs should be influenced by the business climate. For instance, the size of the public sector has been found to have an influence on the level of self-employed (Nyström, 2012). The purpose of this study will thus be to investigate how the local business climate relates to the share of self-employment among immigrants in different municipalities in Sweden. It will also examine the relationship between the business climate and the share of self-employed immigrants who are still in business after one year. The study will compare self-employed immigrants and self-employed natives to see if there are differences between the two groups. The definition of the business climate that this study will use is inspired by the definition that is used by the Confederation of Swedish Enterprises: “the sum of institutions, attitudes, laws 4 and knowledge that faces the enterprises each day” (own translation). In other words, the definition of the business climate that we will use will encompass several aspects of the business climate. The components that we will include are formal institutions, attitudes from local business owners, knowledge, supply and demand of products and services as well as employees, the well-being of the municipality, and factors that induce entrepreneurship. The definition of the business climate will be discussed further in the literature review section. Fölster and Jansson (2015) find a significant positive relationship between the business climate in a municipality and the level of labour integration for immigrants in Sweden. Hence, the prevailing business climate in a given municipality explains part of the labour integration outcome in that municipality. Andersson and Hammarstedt (2010) find that self-employment among immigrants in the current generation has a positive effect on the rate of self-employment for future generations, indicating that self-employment today can lead to reduced unemployment for coming generations. This is an example of path dependence, meaning that previous start-up rates affect current start-up rates, creating persistence in the start-up rates (Andersson and Koster, 2011). Earlier research focuses to a large extent on national structures that prevent immigrants from becoming integrated into the regular labour market (Klinthäll et al., 2016). However, there is not much research about whether the local business climate can explain differences self- employment among immigrants in municipalities in Sweden. Stevenson (2001) finds that the majority of new businesses are started in the three largest city regions and statistics from Statistics Sweden (2016), show that the share of immigrants who become self-employed differ in different regions. Nyström (2012) studies differences in entrepreneurship in municipalities in Sweden and finds that factors in the local business climate have an influence of the level of self-employment. However, Nyström (2012) does not discuss or study the impact of the business climate on the immigrants who are self-employed and whether there is a connection between those variables. Also, Nyström does not investigate whether the local business climate has a positive impact on immigrant owned businesses in a longer perspective. As already mentioned, there are differences in the proportion of immigrants that start businesses