Small businesses run by immigrants in minority neighborhoods make less profit and have a greater risk of failure

Recent immigrants often face barriers to making a living, be it through their limited English or even racial prejudice. Many respond by setting up their own businesses, often in minority neighborhoods. Using data on nearly 5,000 firms from the early 1990s, Tim Bates finds that while setting up businesses in minority neighborhoods can be attractive for immigrants because of reduced discrimination and the low capital requirements, there are also significant risks. Comparing businesses in minority and white neighborhoods, he finds that those in minority areas have a 29 percent closure rate after four years, compared with 21 percent in white areas, and that they make making less than 2/3rds of the profit of their counterparts in non-minority neighborhoods.