14 Sep 2011Working Paper Summaries

Ethnic Innovation and US Multinational Firm Activity

by C. Fritz Foley and William R. Kerr

What effects do immigrant scientists and engineers have on the global activities of the firms that employ them? To what extent do these high-skilled immigrants help US multinationals capitalize on foreign opportunities? Professors Foley and Kerr analyze key data concerning US patents, direct investment abroad, research and development, and the ownership structure of firms. They show that immigration enhances the competitiveness of US multinationals. Taken together, the results have implications for immigration policies. Many debates about immigration focus on the potentially deleterious impact of low wage immigrants on the domestic workforce. However, Foley and Kerr point out that immigrants who are skilled enough to engage in innovative activity generate benefits for firms that are seeking to do business abroad. Key concepts include:

Immigrant scientists and engineers enhance the competitiveness of U.S. multinational firms in their home countries.
The input of ethnic innovators makes the input of local partners less valuable and lowers entry barriers to foreign countries. U.S. multinationals are more likely to enter foreign countries with wholly-owned subsidiaries, as opposed to partially-owned ones, with the domestic support of immigrant scientists and engineers.
Firms with more innovative activity performed by inventors of a certain ethnicity are more likely to conduct R&D and patenting in countries associated with that ethnicity. There is a particularly sharp rise in collaborative R&D that utilizes inventor teams spanning the United States and foreign countries.

Author Abstract

This paper studies the impact that immigrant innovators have on the global activities of U.S. firms by analyzing detailed data on patent applications and on the operations of the foreign affiliates of U.S. multinational firms. The results indicate that increases in the share of a firm's innovation performed by inventors of a particular ethnicity are associated with increases in the share of that firm's affiliate activity in their native countries. Ethnic innovators also appear to facilitate the disintegration of innovative activity across borders and to allow U.S. multinationals to form new affiliates abroad without the support of local joint venture partners. Thus, this paper points out that immigration can enhance the competitiveness of multinational firms.