Research: Why Immigrants Are More Likely to Become Entrepreneurs
by Peter Vandor
We know that immigrants around the world are more likely to start companies than native-born populations but we have a limited understanding as to why. New research suggests personality-based self-selection — in particular, a propensity for risk-taking — may be a hidden driver. The findings have implications for investors, who might want to provide services tailored to the needs of migrant entrepreneurs, including visa and legal advice, and policy makers, who might want to extend support beyond the small group of later-stage international entrepreneurs who are usually the target of entrepreneurship visa programs and investment promotion agencies.
If you’re lucky enough to have received a Covid-19 vaccination, you probably have an immigrant entrepreneur to thank. Not only are Pfizer, BioNTech, and Moderna pioneers in the field of mRNA-based vaccine research; they were all founded or cofounded by immigrants.*
The entrepreneurs who started those companies are prominent examples of a larger trend. A 2012 study found that immigrants were more likely to start businesses than members of the native population in most of the 69 countries surveyed. In the United States, where 13.7% of the population is foreign-born, immigrants represent 20.2% of the self-employed workforce and 25% of startup founders. And according to a 2018 study by the National Foundation for American Policy, immigrants founded or cofounded 55% of the United States’ billion-dollar companies — so-called unicorns.
Yet we have a limited understanding of why so many immigrants take the risk of starting a company. Previous research has attributed the phenomenon to host-country effects, such as labor market discrimination, selective immigration policies, and the availability of specific opportunities within ethnic groups in areas with high overall immigration.
In my recent research, I explored a more hidden driver of immigrant entrepreneurship: personality-based self-selection. The decisions to emigrate voluntarily and to start a company are both associated with high levels of risk. Entrepreneurs of all types face the threat of business failure. As a study of startups in several OECD countries showed, just above 60% survive past their third birthday, and only 40% make it past their seventh one. Immigrants, too encounter significant additional risks, from unemployment or underemployment to xenophobia and psychological trauma.
My hypothesis was that people with a high tolerance for risk would be more likely than others to perceive both voluntary emigration and entrepreneurship as viable paths. So I expected that immigrants would be more likely than others to start businesses precisely because of their appetite for risk, which helped them go abroad in the first place. I tested the hypothesis through a longitudinal study of engineering and business students at two Austrian universities. In 2007 I surveyed 1,300 students about their risk-taking preferences and their intentions and concrete plans to start a business and move abroad for work. Twelve years later I collected a second wave of data from 360 of them, via two professional social media platforms, to learn about their careers since the first survey was conducted.
The results confirmed my hypothesis: Students with a high willingness to take risks were significantly more likely than others to plan to emigrate and start a business, and by 2019 those plans had become reality. More than a quarter of the former students had moved abroad, and many had become entrepreneurs. While 19% of the non-emigrants in the sample had started one or more companies, 29% of those who had emigrated and still lived abroad had done so. Among those who had emigrated but subsequently returned to Austria, the figure was even higher: 43% had started a business in the 12 years covered by the study.
Statistical analyses confirmed that a high willingness to take risks contributed greatly to the results, even after controlling for age, gender, entrepreneurship experience, and other variables. Additional findings suggested that self-selection effects might extend to other personality traits that have been associated with success as entrepreneurs and in the labor market. The data showed that individuals with a high achievement motivation (a tendency to set and accomplish challenging goals) were significantly more likely than others to emigrate and to plan on becoming entrepreneurs at some point in the course of their lives.
These findings have direct implications for investors and policymakers. In recent years some venture capitalists, such as Unshackled Ventures and OneWay Ventures, have set up funds that work exclusively with ventures founded or cofounded by immigrant entrepreneurs. Along with startup support, they provide services tailored to the needs of foreign-born founders, including visa and legal advice. Their investment rationale is simple, and it’s very much supported by my study’s results. As OneWay Ventures argues, owing to self-selection, “immigrant founders have a competitive advantage when it comes to building impactful, global reaching ventures.”
From a policy perspective, the findings suggest that the entrepreneurial potential of immigrants extends beyond the small group of late-stage international entrepreneurs who are usually the target of entrepreneurship visa programs and investment promotion agencies. Public policy should also support nascent entrepreneurs among immigrants by providing funding, training, access to work spaces, and help navigating the administrative processes associated with starting a business as an immigrant.
In countries with net emigration, self-selection can pose challenges; entrepreneurial talent can become part of the overall “brain drain.” Although countries of origin benefit from emigrants’ entrepreneurial activities through trade and remittances, they experience fewer job-creation and economic-spillover effects than host countries do. Still, there’s a silver lining to my findings: As noted, emigrants who returned to their countries of origin were the most entrepreneurial group in the study’s sample, most likely because of the experience and opportunity-recognition capabilities they gained abroad and the advantage of operating in a familiar environment upon their return. Successful public programs in China, Senegal, Mexico, and the Philippines show that countries of origin can make use of the high potential of this group through targeted entrepreneurship support.
The social impacts of such policies can be significant. Entrepreneurship can provide immigrants and return immigrants with opportunities for upward mobility and integration. What’s more, it contributes to job creation and innovation in the society at large. It might even lead to the development of a new type of vaccine against a global pandemic.
This article is originally posted in Harvard Business Review.
https://hbr.org/2021/08/research-why-immigrants-are-more-likely-to-become-entrepreneurs
