What It Is That Makes Immigrants Such Good Entrepreneurs?

The crucial entrepreneurial role immigrants play in the economy is something I’ve touched on a number of times before. For instance, I wrote recently about the importance of immigrants for jobs after new research from Kellogg School of Management showed that immigrants actually create a huge number of jobs by virtue of their entrepreneurial abilities.

Wharton research further elaborates on this point by pointing out that immigrant founders not only create jobs but also bring considerable finance with them. The authors state that cross-border VC investment is now at record levels, with this in large part due to the increasingly international nature of entrepreneurship.

It’s perhaps no surprise, therefore, that recent research from MIT’ CSAIL lab has shown that while American continues to lead the way in the development of artificial intelligence, much of the actual breakthroughs are driven by foreign-born scientists.

The researchers assessed improvements made to the key sections of AI over the past 70 years and found that around two-thirds of the gains in that time were delivered by researchers at North American universities. What is important, however, is that in the last 30 years, over 75% of these breakthroughs have come from foreign-born scientists.

Immigrant entrepreneurs

Traditionally, it has been thought that immigrants make such good entrepreneurs both because they bring novel perspectives with them from their homeland, but also the unfamiliarity with the domestic labor market makes entrepreneurship an attractive alternative to traditional employment.

New research from the Vienna University of Economics and Business explores whether there is also an element of self-selection involved. When people voluntarily choose to emigrate, they’re engaging in what many would regard as a risky endeavor due to the unfamiliarity with their new home and the chances of success there.

This tolerance of risk could be invaluable when starting a business, as the high failure rate of any new business is well documented. The researcher hypothesized that people with a high tolerance for risk would be both more likely to emigrate and to start a business when they do so.

Tolerance for risk

The hypothesis was tested on 1,300 students from a couple of Austrian universities, who were asked for their risk-taking preferences alongside their intentions to move abroad and/or start a new business. This was then followed up twelve years later to understand what had happened to those students and how their careers had unfolded.

The results reveal that the students with the highest willingness to take risks were also those most likely to both emigrate and start a business. Indeed, of the original cohort, over a quarter had moved abroad, with many going on to create a business. Among emigrants, the was a 10% greater probability of starting a business than those students who had remained in Austria. 

Interestingly, the ratio was even higher among those who had moved away but then returned to the country. Nearly half of those who followed this path ended up creating a business.

When the researcher conducted a statistical analysis of the findings to account for things like age, gender, and entrepreneurial experience, the acceptance of risk was a determining factor in this willingness to create a business.

A welcoming environment

This tendency towards entrepreneurship is prompting growth in targeted support for immigrants. For instance, Unshackled Ventures and OneWay Ventures are two VC funds that specifically target immigrant entrepreneurs, with the funds providing not only financial support but also help in areas such as legal advice and visa expertise.

It’s not a level of support that is being matched at a policy level, however. Recent research from Vienna University of Economics and Business highlights how the “hostile environment” created in the U.K. has been driving foreign-born scientists from their shores, with a particular exodus occurring since the Brexit referendum in 2016.

A similar picture was painted of the U.S. by research from Ohio State University, which revealed that a growing number of Chinese researchers are leaving the country and taking their ideas and intellect with them.

The study found that around 16,000 researchers have returned to China from overseas in the last few years, with 4,500 leaving the United States alone. That’s roughly twice the number who were leaving per year in 2010. It’s a trend that is helping to turn China into a true scientific powerhouse.

Immigrants can clearly provide a huge amount in terms of entrepreneurship but also innovation within companies, but it’s equally clear that more needs to be done to provide a welcoming home for them and a supportive environment to allow them to flourish. As we emerge from the Covid pandemic, it’s perhaps something for policymakers to remember.