Crime, Social Capital and Entrepreneurship: Evidence from Australian Communities

Abstract

Social capital is integral to business formation. Because crime can damage social capital within communities, we examine the links between crime rates and the propensity for entrepreneurship within those communities. Drawing on Australian longitudinal data, we match entrepreneurship rates with types of crime at the community level where crime occurs. We find that higher crime rates cause lower rates of entrepreneurship and that the presence of social capital mediates this relationship as a core explanatory mechanism. We also show that the relationship between crime rates and propensity for entrepreneurship is not deterministic. Being more internal on locus of control dampens the adverse effect of local area crime on the likelihood of being an entrepreneur.