The Missing Pieces of the Economic Debate Over Immigration Reform

Exequiel Hernandez, PhD
Date of Publication: 
August, 2018
Source Organization: 

In formulating immigration policy, a complete understanding of the impact of immigration on the U.S. economy should go beyond labor force participation. In Missing Pieces of the Economic Debate over Immigration Reform, the author discusses the interrelation between three core components of immigration economics: labor, capital and innovation – the latter two often overlooked in analyzing immigration. Based on his examination of nearly 300 foreign direct investments in the United States, and research on entrepreneurship rates by Harvard Business School and Kauffman Foundation scholars, the author argues that immigration benefits the economy in multiple ways. He finds, for example, that for every 1 percent increase in the state population from a firm’s home country, the likelihood of the firm choosing that state increased by nearly 50 percent. Moreover, the survival rate of the firm seems to increase with the size of the immigrant population.  These investments are not limited to products and services targeting niche ethnic communities, but are often more general in nature, relying on immigrants to “bridge the cultural, economic, and institutional distances that make new market entry so challenging” for foreign firms. Likewise, immigrants make up an outsized share of job-creators and innovators in the U.S. (about a quarter of entrepreneurs and 31 percent of venture capital-backed founders), which spurs innovation and creates more jobs for native-born Americans. As a result, the author suggests a shift in discourse among policymakers that recognizes immigrants’ multiple benefits to the economy, particularly as the drivers of substantial capital investments and the sources of innovation. (Ayse Alkilic for The Immigrant Learning Center’s Public Education Institute)

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Hernandez, E. (2018). The Missing Pieces of the Economic Debate Over Immigration Reform. Penn Wharton Public Policy Initiative Issue Brief, 6(7). Retrieved from