From Farming to International Business: The Social Auspices of New Entrepreneurship in a Growing Economy

Entrepreneurship has been traditionally concentrated in the hands of a few small communities in most developing economies. As these economies restructure, it is evident that these communities will be unable to satisfy the increased demand for new entrepreneurs. The analysis in this paper suggests that entrepreneurs without a family background in business will fill the gap, even in industries where connections matter a great deal, using their own community networks to support business activity. The theoretical framework indicates that these networks will actually grow most vigorously in communities with poor outside options once they do crystallize. Using new firm-level data on the Indian diamond industry, the empirical analysis verifies this prediction, documenting the important role played by an underlying community network in the expansion from agriculture to international business in one historically disadvantaged community over the course of a single generation.