Family Background and Entrepreneurship

Vast amounts of money are currently being spent on policies aimed at promoting entrepreneurship. The success of such policies, however, rests in part on the assumption that individuals are not ‘born entrepreneurs’. In this paper, we assess the importance of family background and neighborhood effects as determinants of entrepreneurship. We start by estimating sibling correlations in entrepreneurship. We find that between 20 and 50 percent of the variance in different entrepreneurial outcomes is explained by factors that siblings share. The average is 28 percent. Allowing for differential treatment within families by gender and birth order does little to further increase our estimates of the importance of family-wide factors. We then go on to show that neighborhood effects, sibling peer effects, and parental income and education explain very little of these correlations. Parental entrepreneurship does play a large role, as do shared genes.