DP7552 Out of Sight, Out of Mind: Migration, Entrepreneurship and Social Capital

Author(s): Jackline Wahba, Yves Zenou
Publication Date: November 2009
Keyword(s): entrepreneurship, savings, selection, social capital
JEL(s): L26, O12, O15
Programme Areas: Labour Economics, Development Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7552

The aim of this paper is to investigate whether return migrants are more likely to become entrepreneurs than non-migrants. We develop a theoretical search model that puts forward the trade off faced by returnees since overseas migration provides an opportunity for human and physical capital accumulation but, at the same time, may lead to a loss of social capital back home. We test the predictions of the model using data from Egypt. We find that, even after controlling for the endogeneity of the temporary migration decision, an overseas returnee is more likely to become an entrepreneur than a non-migrant. Although migrants lose their original social networks whilst overseas, savings and human capital accumulation acquired abroad over-compensate for this loss. Our results also suggest that social networks have no significant impact on becoming entrepreneurs for returnees but matter for non-migrants.