Diasporas and Domestic Entrepreneurs: Evidence from the Indian Software Industry

This study explores the importance of cross-border social networks for entrepreneurship in developing countries by examining ties between the Indian expatriate community and local entrepreneurs in India’s software industry. We find that local entrepreneurs who are based in cities with weaker formal institutions rely significantly more on diaspora networks for business leads and financing. Relying on these networks also has a greater impact on firm performance for entrepreneurs located in weaker institutional environments. Our results provide micro-evidence consistent with a view that cross-border social networks play an important role in helping entrepreneurs to circumvent the barriers arising from imperfect local institutions in developing countries. JEL Classification: F22, L14, L26, L86, O17, O19