| By: | 
Paula Prenzel; 
Niels Bosma; 
Veronique Schutjens; 
Erik Stam | 
| Abstract: | 
A growing empirical literature has established a positive relationship between 
cultural diversity and entrepreneurship rates, often attributing this effect 
to innovative benefits of diversity. However, not all entrepreneurship is 
inherently innovative, raising the question of whether cultural diversity may 
increase the relative prevalence of entrepreneurs pursuing innovative instead 
of more replicative strategies. This study investigates the relationship 
between regional cultural diversity and the innovation-orientation of 
early-stage entrepreneurs and considers moderating factors by decomposing 
shares of foreign-born population by origin within and outside of the EU and 
by education level. Combining survey data from the Global Entrepreneurship 
Monitor with various measures of cultural diversity, we carry out a multilevel 
analysis for 166 European regions. The results suggest that entrepreneurs in 
more culturally diverse regions are significantly more likely to exhibit 
innovation-orientation. We find some evidence that this effect is supported by 
cognitive proximity as the share of EU-born foreign population is driving this 
result. Moreover, our analysis suggests that the effect of cultural diversity 
on innovative entrepreneurship is not due to human capital availability or 
moderated by entrepreneurs' absorptive capacity but rather stems from the 
diversity in cultural background itself. | 
| Keywords: | 
cultural diversity, entrepreneurship, innovation, European regions, multilevel analysis | 
| JEL: | 
F22 L26 O30 R1 | 
| Date: | 
2022–02 | 
| URL: | 
http://d.repec.org/n?u=RePEc:egu:wpaper:2205&r= |