Explaining ethnic entrepreneurship: An evolutionary economics approach

The cultural approaches and the economic approaches advocated by mainstream neoclassical economists and new institutional economists fail to provide an adequate explanation of the differences between ethnic groups in the rate of business formation. These approaches provide only a partial explanation, much of which is based on static, predetermined exogenous and/or endogenous factors. By comparison the old institutional economists’ framework, when applied to this area, offers a more holistic explanation of differential ethnic business formation by bringing together a range of cultural and economic factors that emphasize the path dependency of activities and the dynamic evolution of behaviour and actions.

► This paper highlights the limitations of both mainstream economic analysis and the cultural approaches to ethnic business formation.
► We also explain why there has been a lack of success of many policy initiatives to assist ethnic minorities into entrepreneurship.
► There is a need to investigate the various factors underpinning the socioeconomic context in which ethnic entrepreneurs live.
► In analysing the nature of institutional reforms a distinction needs to be drawn between formal institutional change and social institutions.