The Effect of Globalization on the Performance of Small- and Medium-Sized Enterprises in the United States: Does Owners’ Race/Ethnicity Matter?

Small and medium-sized enterprises (SMEs)— i.e., firms with fewer than 500 employees, play an important role in the US economy. SMEs represent 99.9 percent of the 25.8 million businesses and have generated 60–80 percent of net new jobs annually over the last decade. Thus, in order to understand the effect of globalization on the US economy, one has to know how globalization affects SMEs. This paper examines whether firms that operate in more globalized regions earn less profit. We carry out a separate analysis for white-owned and minority-owned firms because the determinants of profits are different for the two types of firms, and therefore estimates from an analysis using pooled data will be biased. We use total exports, exports by SMEs, and assets of multinational corporations (MNCs) as measures of globalization. Exports by SMEs reflect the extent of globalizationinduced competition by small firms, and the assets of MNCs are a measure of competition by foreign firms and also a proxy for foreign direct investment (FDI) in a region. Furthermore, the measures capture two important aspects of globalization: international trade and FDI.