Judicial efficiency and immigrant entrepreneurship

Extensive research exists on the individual determinants of being an entrepreneur, concerning both social environment and human capital. However, the role of the judiciary has not been investigated yet. Our paper aims to fill this gap by focusing on the relation between justice and entrepreneurship in a quasi-natural experiment, that is to say by studying immigrant entrepreneurship. Thanks to unique panel data regarding a 4-year period (2006-2009) and more than 160,000 new micro enterprises owned by immigrants, this study explores the relationship between the judiciary and self-employment. The expected positive relation is tested against the hypothesis that social and economic factors, as well as the enclave effect, are the main drivers of entrepreneurship. Our results show that judicial efficiency is one of the determinants of self-employment, although some differences among immigrant groups are identified. Therefore, the study confirms the key role of law enforcement in encouraging investments and promoting not only growth but also the concentration of immigrant entrepreneurship in the formal economy. This evidence is even more significant since the only viable entrepreneurial alternative for immigrants might be to move to the parallel market, i.e. the grey economy.