Three essays on racial discrimination

Abstract

The first chapter shows that small business owners in credit markets, in particular minority owners, have difficulty in securing sources of capital for their business operation in spite of their economic importance. The literature on credit market discrimination shows consistent results that can be interpreted as evidence that minority owners are discriminated against compared to their counterparts (i.e., white owners) in obtaining loans, which may be caused by lenders' discrimination, although such behavior is prohibited under current fair-lending laws. The first chapter uses pooled cross sectional data from the Survey of Small Business Finances (1993, 1998, and 2003) and a bivariate probit model based on Heckman's approach to deal with sample selection bias for those choosing to apply for loans that has been ignored in analyses of credit markets for small businesses owners. Our analyses confirm previous results suggesting that minority owners are discriminated against in credit markets. The second chapter examines the determinants of discriminatory preferences. The economic literature mainly presumes that racial preferences are exogenous in explaining racial disparities. The research in this area, however, has shown that economic and noneconomic considerations can influence racially prejudiced sentiments. The second chapter adds to the literature by 1) combining repeated cross-sectional survey data - from multiple waves (1976-2018) of the General Social Survey (GSS) - to get more precise estimates and test statistics with more power; 2) conducting regression analyses with different model specifications to show the robustness of the empirical results; 3) showing how empirical results are affected when careful controls for age, period, and cohort are included in the model; and 4) using a quantile regression approach to examine whether there exist differential effects of the variables of interest across the entire distribution of discriminatory preferences. Our findings show that unemployment rates are closely associated with discriminatory preferences, which is consistent with what classical labor market competition theories predict. Also, education seems to be particularly important in predicting discriminatory preferences, especially at the upper end of the preference distribution. The third chapter argues that it is important to investigate how age, period, and cohort impact the shift in racial preference, since any temporal change can be attributed to the effects of these three variables. However, it is noteworthy that there are few attempts in this area that examine the effects of these three time-dimensional variables in explaining the shifts in racial preference, reflecting the difficulties of obtaining estimates due to the linear dependence among them. To separate the contributions of age, period, and cohort on racial preference, the third chapter uses the General Social Survey from multiple waves (1972-2018) and estimates the bounds of the effects instead of obtaining point estimates. Our bounding analyses, combined with theoretical assumptions, is consistent with the theory in allowing for positive effects of age on discriminatory preferences, which interact with negative effects of period and cohort in explaining changing discriminatory preferences over time. These findings suggest that discriminatory preferences in the United States will continue to show a general downward trend, although there may be variations over time.