Foreign-Born Entrepreneurial Human Capital in the US: The Preference–Outcome Gap

Bottom Line: This study finds that during graduate school, foreign-born STEM students are more entrepreneurial than their U.S.-born counterparts, but after graduation they are less likely to work in startups or found companies. This contradiction suggests that U.S. immigration policies deter foreign-born PhDs from participating in entrepreneurship. The U.S. should welcome immigrant entrepreneurs to fight off foreign competition for their services. 

Immigrants to the U.S. are disproportionately entrepreneurial and responsible for founding a significant number of startups. Yet U.S. immigration policies limit these entrepreneurial opportunities. This is particularly problematic in engineering and computer science, where nearly half of recent graduates from U.S. universities are foreign-born and require a work visa to remain in the US either as a founder or as startup employees.

This survey examined the entrepreneurial preferences of more than 5,600 STEM PhD students at 39 US research universities. It found that relative to US citizens, foreign PhD students are significantly more risk-tolerant, report a greater importance of autonomy and financial income, as well as a higher interest in commercialization activities. In addition, it finds that foreign PhD students have a higher self-assessed ability than natives. Many of these differences are systematically correlated with entrepreneurial interests, consistent with the notion that factors such as risk aversion and interest in commercialization are drivers of intentions to become a founder or join a startup as an employee. 

The study finds that foreign-born students want to found or join startups at much higher rates than their native-born counterparts. Overall, approximately 21 percent of foreign PhD students express founder intentions during graduate school, compared to about 10 percent of native PhD students. Similarly, 49 percent of foreign PhD students express a preference for joining a startup as an employee compared to approximately 41 percent of native PhD students.

However, after graduation this picture flips. Approximately 6.3 percent of native PhDs were founders compared to 4.6percent of foreign PhDs Even larger differences were observed among employees, with 14.3 percent of natives being early-stage startup employees compared to 7.4 percent of foreign PhDs Thus, foreign graduates were around 30 percent less likely to become founders and almost 50 percent less likely to join startups as employees despite their original intentions. 

This preference-outcome paradox is likely a result of U.S. immigration policy, which makes working in the U.S. very difficult. Recent research has shown that U.S. immigration policies likely deter foreign PhDs from working in technology startups after graduation, and they instead work in large firms in order to secure a work visa to remain in the U.S. Thus, current U.S. visa policies may both dampen the founding of new companies and constrain startups’ access to a significant share of the science and engineering workforce. 

The U.S. is currently facing growing competition from other countries in attracting foreign students and keeping highly educated graduates – improving labor market flexibility and supporting immigrant entrepreneurship may be one important mechanism to counteract this development.

Read the full study HERE.