International Economics Seminar Series: Foreign Grad Students Spark Entrepreneurial Spillovers Across U.S. Campuses

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Giovanni Peri presented a joint paper titled, “The Contribution of Foreign Master’s Students to U.S. Start-Ups,” with co-authors Michel Beine and Morgan Raux. It examines how international master’s graduates affect start-up formation in the United States. The authors combine data on international student enrollment from the Integrated Postsecondary Education Data System (IPEDS) with start-up firm and founder characteristics from Crunchbase, covering university cohorts from 1999 to 2015. They match founders to their master-cohort to measure the causal effect of foreign master’s students on start-up creation.

Their analysis reveals that by attracting ten percentage points more foreign-born master’s students, a university generates an additional 0.4 start-ups per cohort within five years of graduation. About 55-70% of the total effect is due to the direct start-up creation by foreign-origin entrepreneurs. The remaining 30-45% reflects a spillover effect: U.S.-born graduates are more likely to start a company when in cohorts with more foreign students, in part due to an increased likelihood of co-founding with their international peers.

Notably, 97% of these start-ups are established in the same state as the founder’s university. Yet, only about 20% of international master’s graduates remain in the U.S. two years after graduation, which suggests that restrictive post-study work policies may limit the local and broader economic benefits generated by this talent pool.

The authors conclude that by stimulating and attracting talent from all over the world, the U.S. economy is fueled by foreign graduates through enhanced innovative capacity and economic dynamism.