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The Roles of Immigrants and Foreign Students in US Science, Innovation, and Entrepreneurship$
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Ina Ganguli, Shulamit Kahn, and Megan MacGarvie

Print publication date: 2020

Print ISBN-13: 9780226695624

Published to Chicago Scholarship Online: September 2020

DOI: 10.7208/chicago/9780226695761.001.0001

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High-Skill Immigration, Innovation, and Creative Destruction

High-Skill Immigration, Innovation, and Creative Destruction

(p.73) 3 High-Skill Immigration, Innovation, and Creative Destruction
The Roles of Immigrants and Foreign Students in US Science, Innovation, and Entrepreneurship

Gaurav Khanna

Munseob Lee

University of Chicago Press

The effects of high-skill immigration on receiving countries are theoretically ambiguous. Skilled migrants may increase the profitability and innovative capacity of the firm, but they may crowd out domestic workers and lower the wages of close substitutes. What has been missing is a discussion about how migrants may affect the product-mix produced by a firm and the innovation involved in creative destruction. Economists have identified product entry and exit as a primary channel through which innovation impacts economic growth. In this paper, we document how high-skill immigration affects product reallocation (entry and exit) at the firm level. Using data on H-1B Labor Condition Applications (LCAs) matched to retail scanner data on products and Compustat data on firm characteristics, we find that H-1B certification is associated with higher product reallocation and revenue growth. A ten percent increase in the share of H-1B workers is associated with a two percent increase in product reallocation rates—our measure of innovation. These results shed light on the economic consequences of innovation by high-skill immigrants to the United States.

Keywords:   H-1B visa, product reallocation, Schumpeterian growth

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