Neighborhood segregation and black entrepreneurship

- We find that segregation has a positive effect on black entrepreneurship.
- We address neighborhood sorting by analyzing city averages.
- We address omitted variable bias by instrumenting segregation with railroad configurations.
- Our findings are important because entrepreneurship may decrease welfare and unemployment.
- Entrepreneurship is an important avenue out of poverty.

We examine the causal effect of neighborhood segregation on black entrepreneurship. We address neighborhood sorting by analyzing city averages and omitted variable bias by instrumenting for segregation using historical railroad configurations. We find that segregation has a significant positive effect: a 10 percentage point increase in the dissimilarity index decreases the racial gap by about 3.3 percentage points. To minimize the effect of cross-city sorting, we use a narrower sample constructed from outcomes of young adults and find a similar effect. Our findings are important because historically, entrepreneurship has been an avenue out of poverty, and entrepreneurship has been promoted as a way to decrease welfare and unemployment.