The IT Boom and Other Unintended Consequences of Chasing the American Dream

Abstract

We study how US immigration policy and the Internet boom affected not just the US, but also led to a tech boom in India. Students and workers in India acquired computer science skills to join the rapidly growing US IT industry. As the number of US visas was capped, many remained in India, enabling the growth of an Indian IT sector that eventually surpassed the US in IT exports. We leverage variation in immigration quotas and US demand for migrants to show that India experienced a `brain gain' when the probability of migrating to the US was higher. Using detailed data on higher education, alumni networks, and work histories of high-skill workers, we show that changes in the US H-1B cap induced changes in fields of study, and occupation choice in India. We then build and estimate a quantitative model incorporating migration, heterogeneous abilities, trade, innovation, and dynamic occupation choice in both countries. We find that high-skill migration raised the average welfare of workers in each country, but had distributional consequences. The H-1B program induced Indians to switch to computer science occupations, and helped drive the shift in IT production from the US to India. We show that accounting for endogenous skill acquisition is key for quantifying the gains from migration.

Keywords: High-Skill Immigration, H-1B Visas, India, Computer Scientists, IT Sector, brain gain

JEL Classification: J61, F16, F22