Immigration causes American businesses to fail and that is a good thing
| Pages | 63-72 |
| Date | 11 April 2016 |
| Published date | 11 April 2016 |
| DOI | https://doi.org/10.1108/JEPP-01-2015-0002 |
| Author | Ryan H Murphy,Rick Weber |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
Immigration causes American
businesses to fail and that is a
good thing
Ryan H. Murphy
Southern Methodist University, Dallas, Texas, USA, and
Rick Weber
Department of Economics, Farmingdale State College, Farmingdale,
New York, USA
Abstract
Purpose –The purpose of this paper is to investigate the relationship between immigration rates and
business failure, where business failure is viewed as a proxy for the presence of entrepreneurship.
Design/methodology/approach –It employs a panel data approach to the USA, using the
percentage of the population that is foreign born as the explanatory variable for the business failure
rate ten years later.
Findings –The authors find the effect to be large, with a one standard deviation increase in the
foreign born population corresponding to a 1.09 standard deviation increase in business failure rate,
and the authors argue, entrepreneurship.
Originality/value –The effect the authors find is very large though perhaps also counterintuitive.
Keywords Immigrants, Policy, Economic growth
Paper type Research paper
1. Introduction
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, 2013; Borjas, 2015). 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.
We use the presence of immigrants to predict one counterintuitive measure of
entrepreneurship, the rate of business failure in the USA. We find that the proportion
of immigrants is positively associated with entrepreneurship. A one standard deviation
increase in the percentage of the population within a state that is foreign born
corresponds to a 1.09 standard deviation increase in business failure ten years later.
This effect is statistically significant at the 99 percent level and highly robust.
Similar research includes Sobel et al. (2010), who find that ethnic diversity may have
positive or negative effects on entrepreneurship, contingent on institutional quality.
Fairlie and Chatterji (2013) find evidence that the presence of immigrants suppressed
the rate of hi-tech startups in Silicon Valley in the 1990s. Zelekha (2013) finds that
immigration flows are positively associated with entrepreneurship (as measured by
the proportion of a population self-identifying as a business founder on LinkedIn). Journal of Entrepreneurship and
Public Policy
Vol. 5 No. 1, 2016
pp. 63-72
©Emerald Group Publis hing Limited
2045-2101
DOI 10.1108/JEPP-01-2015-0002
Received 12 January 2015
Accepted1May2015
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
JEL Classification —F22, L26, R11
The authors thank Colin O’Reilly, Alex Nowrasteh, and Benjamin Powell for their helpful
comments.
63
Immigration
causes American
businesses to fail
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