Why Immigrants Are More Likely to Become Entrepreneurs

We know that immigrants around the world are more likely to start businesses than native-born populations, but we have limited understanding of why. New research suggests that personality-based self-selection — particularly risk-taking propensities — may be a hidden driver. The findings have implications for investors who may wish to offer services tailored to the needs of migrant entrepreneurs, including visa and legal advice, and policymakers who may wish to extend their support beyond the small group of later-stage international entrepreneurs usually the target of entrepreneurship visa programs and investment promotion agencies.

If you’re lucky enough to have received a Covid-19 shot, you probably have an immigrant entrepreneur to thank for it. Pfizer, BioNTech and Moderna are not only pioneers in mRNA-based vaccine research; they were all founded or co-founded by immigrants.*

The entrepreneurs who started these companies are prominent examples of a larger trend. A Study 2012 found that immigrants are more likely than natives to start businesses in most of the 69 countries surveyed. In the United States where 13.7% of the population are foreign-born immigrants 20.2% of the self-employed and 25% of startup founders. And according to a 2018 to learn According to the National Foundation for American Policy, immigrants have founded or co-founded 55% of the United States’ billion-dollar companies — so-called unicorns.

However, we have a limited understanding of why so many immigrants take the risk of starting a business. Previous research has attributed the phenomenon to host country effects, such as discrimination in the labor market, selective immigration policy, and the availability of concrete possibilities within ethnic groups in areas with high overall immigration.

In my latest research, I examined a more hidden driver of immigrant entrepreneurship: personality-based self-choice. Both the decision to emigrate voluntarily and to start a business are associated with high risks. Entrepreneurs of all kinds face the risk of business failure. As a to learn of startups in several OECD countries, just over 60% survived their third birthday and only 40% survived their seventh. Immigrants also face significant additional risks, from unemployment or underemployment to xenophobia and psychological trauma.

My hypothesis was that people with high risk tolerance would be more likely to see both voluntary emigration and entrepreneurship as other viable avenues. So I expected immigrants to be more likely to start businesses than others, precisely because of their risk-taking that 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 preferences and their intentions and concrete plans to start a business and go to work abroad. Twelve years later, I collected a second wave of data from 360 of them across two professional social media platforms to learn more about their careers since the first survey.

The results confirmed my hypothesis: students with a high willingness to take risks planned to emigrate and start a business significantly more often than others, which became a reality in 2019. More than a quarter of the former students had moved abroad, and many had become entrepreneurs. While 19% of the non-migrants in the sample had started one or more businesses, 29% of those who had emigrated and were still living abroad had done so. The proportion was even higher for those who emigrated but returned to Austria: 43% had founded a company in the 12 years of the study.

Statistical analysis confirmed that high risk-taking contributed strongly to the results, even after accounting for age, gender, entrepreneurial experience, and other variables. Additional results suggested that self-selection effects might extend to other personality traits associated with entrepreneurial and labor market success. The data showed that individuals with high achievement motivation (a tendency to set and achieve challenging goals) are significantly more likely than others to migrate and plan to become an entrepreneur at some point in their lives.

These results have direct implications for investors and policy makers. In recent years, some venture capitalists, such as Unleashed Activities and one-way ventures, have established funds that work exclusively with companies founded or co-founded by immigrant entrepreneurs. In addition to start-up support, they offer services tailored to the needs of foreign-born founders, including visa and legal advice. Their investment principle is simple and is strongly supported by the results of my study. As OneWay Ventures arguedDue to self-selection, “founders with a migration background have a competitive advantage when it comes to building effective, globally oriented companies”.

From a policy perspective, the results suggest that the entrepreneurial potential of immigrants extends beyond the small group of late-stage international entrepreneurs who are typically the target of entrepreneurship visa programs and investment promotion agencies. Public policies should also support budding immigrant entrepreneurs by providing funding, training, access to jobs and helping to manage the administrative processes involved in starting a business as an immigrant.

In countries with net emigration, self-selection can be challenging; Entrepreneurial talent can become part of the general brain drain. Although source countries benefit from emigrant entrepreneurial activities through trade and remittances, they experience fewer jobs and economic spillovers than receiving countries. Still, there is a silver lining to my findings: As mentioned earlier, emigrants returning to their countries of origin were the most entrepreneurial group in the study sample, most likely due to the experience and opportunities to spot opportunities they gained abroad , and the benefit 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 use the high potential of this group through targeted start-up support.

The social impact of such measures can be significant. Entrepreneurship can provide opportunities for upward mobility and integration for immigrants and returnees. Plus it helps job creation and innovation in society as a whole. It could even lead to the development of a new type of vaccine against a global pandemic.

*Pfizer was founded in the United States by German immigrants Charles Pfizer and Charles Erhart. BioNTech was co-founded in Germany by Turkish immigrant Uğur Şahin. Moderna was co-founded in the United States by Lebanese immigrant Noubar Afeyan.

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