Cultural diversity: an impetus to economic growth – under what conditions?

Realizing cultural diversity’s impact on regional entrepreneurial activity has become crucial for scholars and policymakers. As a step in this direction, this study integrates insights from creative cognitive psychology and the knowledge spillover theory of entrepreneurship to examine this effect and the boundary conditions explaining it. Based on a six-year multi-sourced panel dataset for the 50 U.S. states, the analyses support the proposed arguments in that they indicate that cultural diversity is positively associated with entrepreneurial activity, and this relationship is moderated by regional immigration policy and regulatory framework. Specifically, the effect of cultural diversity on entrepreneurship is more substantial when a region’s immigration policy climate is more inclusionary than exclusionary. In addition, this relationship is also more robust when a region’s regulatory policy is more conscientious than more lax. These findings make novel contributions to our knowledge of how and when contextual conditions regulate (i.e. stimulate or hinder) the effect of cultural diversity on entrepreneurship. The manuscript draws vital implications for policymakers.