Explaining spatial diversity in entrepreneurship: the Role of Knowledge and Cultural Diversity

This study reviews the relationship between cultural diversity and entrepreneurship, focusing on whether local knowledge stocks and knowledge diversity amplify its effects. Using a unique dataset including immigrant entrepreneurship data across sectors, we confirm a positive effect of entrepreneurs' cultural diversity on entrepreneurship. We also find that this effect is stronger in regions with greater knowledge stocks: the effect increases by between 10 and 20% if the per-capita knowledge stock increases from the level of province with the smallest level of diversity to the one with the greatest. Instead, the role of knowledge diversity in moderating these effects remains less conclusive. We interpret these results in the light of the knowledge spillover and absorptive capacity theories of entrepreneurship. While cultural diversity brings varied perspectives, not all necessarily translate into actionable business knowledge due to potential lack of absorptive capacity within the local system. Diverse economic agents may perceive market opportunities differently, increasing the likelihood of realizing untapped business ideas. Thus, fostering a diverse environment alongside sufficient local knowledge resources and absorptive capacity can be beneficial for entrepreneurship.