Immigration Causes American Businesses to Fail and that is a Good Thing

Abstract

Though counterintuitive, rates of business failure are effective proxies for entrepreneurship. We find that the foreign born population within US states is predictive of business failure ten years later. A one standard deviation increase in foreign born population corresponds to a 1.09 standard deviation increase in entrepreneurship thusly measured. We argue this is evidence that immigration leads to entrepreneurship and economic growth.

The importance of entrepreneurship to economic growth is widely accepted. The role of immigration is more controversial. Concerns over potential costs of immigrants are making headlines in the popular press (Tumulty and Costa 2014; Debenedetti 2014) and some of the scholarly literature (Collier 2012; Borjas 2014). Most prominently, discussions of immigration center on its effects on labor markets and more recently, institutional quality. Less attention is given to their impact on entrepreneurship.

Keywords: Immigration, Entrepreneurship, Business Failure

JEL Classification: F22, L26, R11