Immigration

We know that immigrants in the United States tend to be more entrepreneurial than the native-born population. Available data suggests that immigrants make up a large part of business founders and innovators. This section discusses in more detail what we know on immigrant entrepreneurship.

Introduction

Immigration research is predominantly focused on migrant populations from less-developed regions moving to economically attractive regions and serving as engines of economic and social renewal in their host countries (Massey, Arango, Hugo, Kouaouci, Pellegrino, and Taylor 1993), with much focus on developed host countries (Anderson and Platzer 2006). With that, a large amount of work in this area focuses on immigrants' effect on the U.S. economy. 

We know that, at least in the United States, immigrants tend to be unusually entrepreneurial: available data suggest that immigrants are over-represented within the group of business founders and innovators. The rates of immigrant ownership vary greatly by sector, with highest rates found in engineering and technology. Immigrant entrepreneurs greatly contribute to economic growth and innovation in the U.S., as documented by a number of empirical studies. There is less evidence in terms of their contribution to job growth and creation of business opportunities for domestic firms (e.g., exports).

Many eclectic theories have been used to explain this relationship between immigration and entrepreneurship. The main claim of much of this work is that immigrants have intrinsic capabilities—risk propensity, high education, unique knowledge, or identity—that increases the likelihood of entrepreneurship compared to their host country counterparts. In addition to possessing intrinsic abilities, immigrants also have access to social capital, transnational resources, knowledge networks, and ready role models that can help sustain entrepreneurial activities.

Scholars seem to have a good understanding of why and which types of immigrants outperform host country counterparts in engendering entrepreneurship; however, much less is known about the types of immigrant capabilities that may be harnessed by host countries looking to benefit from immigrant entrepreneurship. This is because there has not been sufficient diversity in host countries, and what we know stems from research on migrant populations in developed countries. Similarly, we know very little about the influence of diasporas (mass migrations from specific origin countries that have been directed to multiple destinations) in both host and home countries' entrepreneurship, e.g., the mass emigration of Iranians after the 1979 revolution. We also need more studies that focus on differences in business practices of immigrant-founded companies from those of their host countries.

Finally, it is worth noting that there is some confusion about the definitions of "immigrant" and "entrepreneur" in this literature. For example, some studies focus on immigrants who arrive to the U.S. specifically to found a business, while others use a much broader definition of immigrants, including second generation immigrants, for example. Also, most of the literature focuses on high-tech, high-growth entrepreneurship (Anderson and Platzer 2006) (Lardner 2000), even though much of immigrant self-employment is related to economic necessity and lack of job opportunities.

Discussion

The seminal studies in the field suggest that a high proportion (up to 25 percent) of high-tech firms are founded by immigrants (Saxenian 1999) (Wadhwa, Saxenian, Rissing, and Gereff 2007) (Hart and Acs 2011). There are some arguments regarding the differences across industries and the comparability of the percentages across regions. In general, researchers agree that business ownership is higher among immigrants than natives, a fact that also pertains to countries other than the U.S. (Borjas 1986) (Fairlie, Zissimopoulos, and Krashinsky 2010) (Lofstrom 2002) (Schuetze and Antecol 2007). There is no good national estimate for what percentage of all U.S. firms are founded by immigrants or the percentage of all immigrants who go on to found a company (and this relative to the same percentage for U.S. natives). The problem is related to lack of large, national-panel data sets that would follow firms and individuals over time, as well as to a lack of a clear definition of immigrants and entrepreneurs. Nevertheless, most researches in the field believe that immigrants are more likely to found businesses than natives (especially in the high-tech sector), and that these businesses generate more innovations than the average native-founded business. The evidence on innovations is particularly good relative to the other statistics known about immigration and entrepreneurship (Hunt and Gauthier-Loiselle 2010) (Kerr and Lincoln 2010) (Monti, Smith-Doerr, and MacQuaid 2007) (Brunello 2007). While we do not have strong causal explanations for all of these trends, we do know about some immigrant-specific characteristics that could help explain their propensity for entrepreneurship as a broadly-defined group.

Immigrant-specific Factors

Some immigrant-specific attributes refer to human capital traits that differentiate immigrants from host-country compatriots. These include natural risk-taking tendencies, a higher level of education, a strong sense of identity, and greater intrinsic motivation. A tendency toward being natural risk-takers has led many immigrants toward entrepreneurship. For instance, immigrants take more risks and pursue more aggressive prospector strategies in founding teams of new ventures than natives (Chaganti, Watts, Chaganti, and Zimmerman-Treichel 2008). High education levels among immigrants also make them ideal candidates to form and lead high-technology companies that rely on specialized knowledge and expertise. In a study of Indian immigrants, Wadhwa, Saxenian, and Siciliano (2012) describe how the later generation of Indian immigrants who came to take advantage of the educational opportunities in the U.S. started leveraging their education by taking part in the software boom of the late 1990s. The dynamic nature of technological change in the information industry created new areas of specialization that this group of highly educated immigrants was well positioned to exploit, founding many companies and being influential entrepreneurs in the Silicon Valley (Lardner 2000).

Ethnic Enclaves

Immigrants may also be motivated for reasons other than solely pecuniary gains. Immigrants may suffer from liabilities of foreignness that preclude them having a great influence or acceptance in their host countries. Several immigrants who purse entrepreneurial opportunities find greater respect, recognition, and social integration in their communities (Chrysostome and Lin 2010). Immigrants may also gain access to employment opportunities and information in their host countries, often finding these in ethnic enclaves. These immigrant entrepreneurs acquire social capital from networks in their ethnic enclaves that positively impact the growth and survival of their entrepreneurial endeavors (Aliaga-Isla and Rialp 2013). Ethnic enclaves promote shared values and identity, which are strongly correlated with immigrant entrepreneurship (Saxenian 2002). A number of opportunities for professional and personal advancement are realized through socialization that occurs over frequent community meetings and gatherings (Saxenian 2002). These ethnic ties are important sources of ideas regarding market opportunities as well as how to best exploit them.

Besides giving immigrants access to knowledge, ethnic communities afford higher social capital that benefits immigrant entrepreneurs even when after they create their new ventures. Efendic, Andersson, and Wennberg (2013) looked at data on 50,002 privately held firms in Sweden over four years and found that firms run by second-generation immigrants show higher growth rates even though their average revenues were lower. The authors suggest that immigrants' social capital alleviates the scarcity of financial and human capital they may have in their host countries and contributes to their high growth rates. Along with endowments of social capital, the level of personal identification immigrant entrepreneurs have with their ethnic community influences whether they choose to pursue new ventures in their ethnic enclave or the dominant market. A study of 103 immigrant-owned ventures in a U.S. Midwest state found that immigrant entrepreneurs' capital endowments and social identities influence their choice of an enclave versus dominant market venture strategy. Furthermore, the alignment between entrepreneurial capital and venture strategy shapes overall immigrant venture performance (Ndofor and Priem 2011).

Transnational Ties and Advantages

In addition to social capital, immigrant entrepreneurs can draw on transnational resources by building on broader cross-country social networks shared by their ethnic diasporas. Resources such as access to international networks can provide a competitive advantage to these entrepreneurs over non-immigrant entrepreneurs. In studying a large sample of Canadian business owners, Neville, Orser, Riding, and Jung (2014) found that young immigrant-owned exporter firms outperformed young domestically founded firms whether or not they exported; however, immigrant-owned firms that did not export underperformed domestic-owned firms. The authors postulate that in the export business in particular, immigrant entrepreneurs have access to international networks that provide a competitive advantage over non-immigrant entrepreneurs (Portes, Haller, and Guarnizo 2002) (Neville et al. 2014).

While immigrant entrepreneurs who are able to harness market knowledge from their ethnic communities can build new companies serving ethnic markets, many successful entrepreneurs are also able to break out of ethnic markets by focusing on global markets that have larger geographical reach and greater profit margins. Analysis based on a survey of South Asian immigrant entrepreneurs in the UK found that the ability to 'break out' of ethnic labor markets and 'break through' into larger, global markets is strengthened by the entrepreneur's education, experience, and access transnational networks (Basu 2010).

Host- and Home-Country Effects

Prior studies of home country factors found that immigrants from nations with higher levels of self-employment (which mostly tend to be developing nations) are more likely to be self-employed as immigrant entrepreneurs in the U.S.; however, recent research by Oyelere and Belton (2012) found that immigrants from developing countries have a lower likelihood of being self-employed as entrepreneurs than immigrants from developed nations. The authors found a positive correlation between a country's human development index and the probability of self-employment in the U.S.

Highly skilled immigrants with high levels of education and financial capital give rise to entrepreneurs who exert a significant influence on economic development in their host countries. In the Silicon Valley, high-tech Indian and Chinese immigrant entrepreneurs founded companies that have created jobs and contributed billions of dollars toward expansion of the U.S. economy (Wadhwa, Vivek, Saxenian, and Siciliano 2012). In addition to benefiting their host countries, immigrant entrepreneurs also remake the global market space, giving their home countries distinctive advantages. Some returning immigrants from India have been associated with creating new companies, serving as serving as venture capitalists, supporting the creation and growth of local companies in new technology fields. A study of immigrant remittances suggests that such remittances increase new business start-up rates when the home country's public sector is sufficiently small (Vaaler 2011).

In addition to home country factors, researchers have also looked at host-country attributes and their influence on immigrant entrepreneurship. Some host countries have policies that actively promote immigrant self-employment and entrepreneurship. For instance, the self-employment policies in Germany and the Netherlands have been studied to see their effects on entrepreneurship among immigrants in those countries (Kontos 2003) (Kloosterman 2003). Further, changing immigration policies and taxation rates in a host country can impact the number of immigrant entrepreneurs and the survival of immigrant-owned businesses (Collins 2003). When host countries have policies that hinder conventional employment of immigrants, these otherwise-unemployed immigrants turn toward entrepreneurship and self-employment to make opportunities for themselves (Teixeira, Lo, and Truelove 2007).

Overall, immigrant populations have a higher propensity for engaging in entrepreneurship; however, while a host of immigrant-specific factors may affect propensity to become an entrepreneur, the relationship between immigrants and entrepreneurship depends crucially on home- and host-country specific factors as well. Immigrant entrepreneurship and its sustenance is often a combination of immigrant-specific factors and home- and host-country effects.

Crowding Out

Finally, one important but somewhat open question is related to the potential crowding out of native entrepreneurs by immigrant entrants. Farilie and Meyer (2003) used 1980 and 1990 Census data and various measures of self-employment and immigration to examine the impact on native-born entrepreneurs. They find some evidence that immigration may negatively affect native self-employment probabilities, but this question could be studied more conclusively and with more recent data using the LEHD (see below in the data section).

A recent literature review on many of these (and other relevant) aspects of immigrant entrepreneurship is provided by Fairlie and Lofstrom (2013)

Future Research

There are several issues that are either under-studied or not studied at all, including:

  • The role of legal barriers (e.g., work visas) for immigrant entrepreneurs, especially related to the job growth that could be created by immigrant entrepreneurs. Some evidence exists for the patenting and innovation. 
  • The role of financial constraints for immigrants when starting new firms (bank, other start-up financing, angel investments). The role of ethnic networks could be an interesting part of this question.
  • In general, there is a distinct lack of firm-level data and firm-level analyses on immigrant-founded firms. The LEHD data could be a very useful source here. One specific focus could be the job creation done by immigrant-founded and -owned companies. The companies may also create jobs abroad, but finding suitable data sources to study that question is harder. 
  • The research has been rather U.S.-focused and considers mainly U.S. factors as drivers for immigrant entrepreneurship. Given the world development in the last few decades, it would be important to understand what the effect of new economic opportunities in China and India are on U.S.-based immigrant entrepreneurship. 
  • We still do not have a good general understanding of which host/home country factors inhibit or enhance the effect of immigrant specific factors on entrepreneurship. 
  • We do not know much of how entrepreneurship by immigrants affects subsequent immigration and entrepreneurship in host and home countries. Future research can focus on how existing immigrant entrepreneurship will further induce new immigrants to enter entrepreneurship, both in the host as well as in the home country. This focus on studying immigrant entrepreneurship through the narrow lens of its effects on the host country needs to be broadened to include more detailed studies of how and when migrant populations can foster entrepreneurship in their home countries as well. This requires a shift in focus from studying immigrants to studying ethnic diasporas that often serve as pools of human and social capital on which entrepreneurs rely. 
  • Lastly, the field is rife with eclectic theories drawn from diverse areas that are often philosophically contradictory to each other. This means that a coherent and consistent framework to study immigrant entrepreneurship is a still in its embryonic stages and needs further development.

Data Sources

Most data sets used to study immigrant entrepreneurship are individual- or household-level surveys collected by the U.S. Census Bureau. These provide large enough samples to study immigrant business ownership in detail. Two are household surveys: the American Community Survey (ACS) and the Current Population Survey (CPS). The third set that is sometimes used is a business-level survey: the Survey of Business Owners, but only one year of that survey includes the necessary data to study immigrant business owners. These datasets include information on immigrant owners' source countries, skill levels, states of residence, and industries of businesses. These are all public-access datasets with no cost involved for users.

One alternative that has not been used to date is the Census Bureau's Longitudinal Employer - Household Database (LEHD) that can (and has) been merged with 2000 and 1990 Census data to obtain information on the immigrant status and country of origin of the individuals. This is a confidential dataset that requires research proposals to clear the usual Census Bureau review process and can only be used in the designated Research Data Centers (RDC). There is a cost associated with the use of RDCs, but most large universities have a license with the Census Bureau that covers the cost.

Some researchers have performed their own surveys (Hart and Acs 2011) or have obtained data via private vendors such as Dunn and Bradstreet (Wadhwa, Saxenian, Rissing, and Gereff 2007). These would require permission from the authors or data vendors, and would involve some cost to access.

Other sources include:

References

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Basu, Anuradha. 2010. "From 'Break Out' to 'Breakthrough': Successful Market Strategies of Immigrant Entrepreneurs in the UK." International Journal of Entrepreneurship 14: 59-81.

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Page last edited 5 July 2016