- Immigration
Key Takeaways
- Increasing the share of international students in master’s degree programs leads to more start-ups within five years of graduation—including higher-quality firms that survive, attract funding, and patent new ideas.
- The presence of international students leads US-born classmates to launch more businesses by fostering collaboration across backgrounds and exposing students to a wider range of ideas.
Innovation and entrepreneurship are fundamental to sustained economic growth and rising productivity. Immigrant entrepreneurs—especially those who entered the United States as international graduate students—play an outsized role in launching high-potential, growth-oriented companies.
Prior research documents immigrants’ higher rates of firm founding and innovation, but it generally focuses on immigrants’ direct contributions, such as the companies they start. It leaves open an important question: Do foreign-born students also influence their US-born peers to become entrepreneurs?
This study measures whether international students in American master’s programs increase the number of start-ups formed within five years of graduation. It examines both the companies these students start themselves and whether their presence encourages their US-born classmates to launch new businesses.
Master’s program to start-up trajectories
By combining several sources of data—including Crunchbase, a large database of start-ups, university records on graduating cohorts, and data on F-1 student visa inflows—we measure start-up activity among master’s degree graduates.
For each graduating cohort, we count the number of firms founded within five years of graduation, including companies started by both foreign-born and US-born students. We also measure the share of international students in each cohort. We then examine whether cohorts with a higher share of international students go on to create more start-ups within five years of graduation.
Foreign master’s students and start-up creation
We find strong evidence that cohorts with more international master’s students go on to start more companies. A 10-percentage-point increase in the share of foreign-born master’s students yields an increase of roughly 0.5 start-ups per cohort within five years of graduation. The size of this effect is substantial. It implies that the average enrollment of roughly 500,000 international graduate students in US universities is associated with about 4,000 additional start-ups per year.
The increase is not just in the number of start-ups. It also includes stronger companies—those that survive at least three years, raise more early funding than the typical start-up, and file at least one patent within three years.
Boosting entrepreneurship among US-born students
An important part of this study is showing that international students not only start companies themselves, they also influence whether their US-born classmates become entrepreneurs.
We find that between one-quarter and one-half of the overall increase in start-ups linked to international students’ enrollment in master’s programs comes from greater entrepreneurship among US-born graduates in those same classes. In other words, many of the additional companies are started by American classmates.
This means that earlier studies, which looked only at firms founded by immigrants themselves, likely underestimated immigrants’ total contribution to new business creation.
This finding suggests that American graduate programs provide a fertile environment for original ideas and new ways of building businesses and developing products. By bringing together students and faculty with different origins, ideas, and approaches, master’s programs with larger country-of-origin diversity can be “multipliers” for entrepreneurship.
Increasing cofounding and broadening ideas
We also provide evidence on how these effects may occur, including through collaboration and exposure to diverse ideas. Cohorts with more international students exhibit higher rates of mixed-origin cofounding (US-born with foreign-origin cofounders). One third of the additional firms created are cofounded by a US-born and a foreign-origin master’s graduate. Additionally, the products and services provided by these new firms display greater variety in key words used to describe them, which indicates that these founders generated a broader set of entrepreneurial ideas.
Policy implications
These patterns suggest that interactions in graduate programs help build collaboration and connections between US-born and international students. These relationships benefit both groups and lead to the creation of more new ventures. To maximize these benefits, education and immigration policies could focus on allowing universities to select high-quality foreign graduate students without burdening them with extra costs or requirements and allowing them to remain in the United States after graduation if they plan to start a company.
Note: This research brief is based on the working paper “The Contribution of Foreign Master's Students to US Start-Ups” by Michel Beine, Giovanni Peri, and Morgan Raux.
Giovanni Peri is the C. Bryan Cameron Distinguished Professor in International Economics at the University of California–Davis.
