Did COVID close the start-up deficit in Black neighborhoods? Evidence from the Startup Cartography Project - 12 Nov 2024

Abstract: Leveraging data from ten U.S. states from the Startup Cartography Project, this paper considers the changing nature and geography of entrepreneurship, examining whether COVID closed the longstanding deficit in the rate of start-up formation within Black neighborhoods.  Focusing on 2011 through 2023, we explore the relative change in the rate of start-ups in Black neighborhoods versus others over time.  We first document a sizeable deficit during the first four years of this period, followed by a steady but incremental narrowing of the Black neighborhood start-up deficit.  We then observe, in the wake of the onset of COVID, a sizeable and immediate jump in the overall rate of new firm formation, and find this unprecedented boom is particularly concentrated in Black neighborhoods.  While the Black neighborhood entrepreneurship rate remains elevated through the end of 2021, there is a convergence towards the population incidence by the end of 2023.  We examine a range of potential explanations and confounders to explain this changing geography of entrepreneurship.  There are no sizeable policy changes (e.g., tax incentives or the details of COVID relief packages) that would particularly favor business formation in Black neighborhoods, nor do contemporaneous changes (e.g., in gentrification by income or race) account for the phenomena.  We do, however, note that the initial surge in entrepreneurship was coincident with increased support for Black-owned businesses in connection with the Black Lives Matter Movement, and explore, in a preliminary fashion, whether the names of registered businesses reflect a perception of increased entrepreneurial opportunity by Black founders to pursue ventures in the emerging “Passion Economy.”