International Graduate Students Create More Startups and Drive Entrepreneurialism among their Native-born Peers

Michel Beine 
Professor of Economics, University of Luxembourg

Morgan Raux 
Assistant Professor, Aix-Marseille School of Economics 

Summary of recommendations: 

• Reducing barriers for leading universities to enroll international students in their master’s programs will result in a significant boost to start innovative local start-up businesses, contributing to local jobs and economic growth.

• Increasing flexibility and support for international master’s students post-graduation, such as access to local incubators and legal support, will encourage them to stay in the U.S. and contribute to local entrepreneurship that also brings broad economic benefits.

• Expanding visas or stay opportunities, such as proposed by the Keep STEM Talent Act, will encourage international students to stay in the U.S., increasing their economic contributions and further enhancing local entrepreneurship. 

Entrepreneurs drive the foundation of startup companies, the most innovative segment of new businesses, that are key contributors to employment, real output and productivity growth in the U.S. They bring substantial, high-potential innovations to market, hire high-ability workers and frequently pay higher wages than other firms. 

Over half of innovative U.S. entrepreneurs (54% according to Forbes) hold a U.S. graduate degree. This implies that top U.S. universities, like the University of California, are important generators of innovation, as their graduates translate their talents into creativity, inventions and new firms. These firms, in turn, generate value-added, productivity growth and jobs for the U.S. economy. 

U.S. universities attract highly talented people from everywhere in the world, especially for their graduate programs, channeling them into leadership, managerial and entrepreneurial roles. Over the past decade, about 300,000 foreign-born graduate students annually obtained a U.S. visa to enroll in a U.S. graduate program. Many of them stayed in the U.S. for at least a few years after obtaining their degree. 

In a new study,¹ we quantify how international students who obtained a U.S. master’s degree have contributed to the creation of new startups in the U.S. from 1999 to 2019. Our analysis includes a large representative sample of startups provided by Crunchbase, with information on startup founders and their highest degree, and data from the international Postsecondary Education Data Set (IPEDS) that includes the number of foreign-born students graduating from U.S. graduate programs. The results show that international students contribute significantly to the innovative startup landscape in the U.S., which strengthens U.S. economic leadership.

Generating entrepreneurialism and innovation

Our analysis establishes a causal, rather than correlational, link between the numbers of international graduate students and new startups by leveraging changes in out-of-state tuition fees across U.S. graduate programs. Lower fees increased international student enrollment, and our statistical analysis isolated these enrollment increases to the creation of new startups to the exclusion of all other potential contributing factors, including the local economy. 

The results show that an additional 150 international students in a cohort led to one additional startup recorded in Crunchbase within five years of that cohort’s graduation. This is about 8-9 times more than adding 150 U.S.-born graduate students to the same cohort. As Crunchbase records only the more successful startups surviving at least three years, this effect impacts the economy more than simply adding startups that might not succeed. 

Our analysis also shows that part of this result comes from international students increasing the entrepreneurialism of their U.S.-born peers. At least 40% of the additional startup firms generated by a larger share of international students are founded or co-founded by U.S.-born graduates. It is likely that by interacting with international students, U.S.-born students are exposed to broader perspectives on business and learn new skills that complement those they had already. They might also establish more national and international connections. 

The startups founded or co-founded as a consequence of the increase in international students are highly valuable and innovative. They have a high probability of raising $25 million or more in capital within the first five years and register at least one patent.

University quality sparks local innovation

The high-quality of U.S. university master’s programs was a driving factor in both attracting talented international students and the innovative startups they create after graduating. The highest entrepreneurial potential among master’s graduates overall came from those graduating from R1-R2 research universities and especially in STEM fields. 

International master’s students at R1 research institutions, such as University of California campuses, create startups at an even higher rate. This is likely due to these universities attracting the most talented students globally. While graduates of master’s programs in business represent the largest share of total startup entrepreneurs, graduates from programs in computer science, physical and biological and biomedical sciences are very large contributors as well. 

Most of these new startups are located near the university where students received a master’s degree. This means that high-quality universities generate a very high added value for their communities by attracting international talent and retaining its firm-creation power locally. 

Shifting policies to keep talent in the U.S.

These significant contributions for international graduate students are made in spite of the limited options students have to stay in the U.S. after graduation. The Optional Practical Training (OPT) visa extends the stay for some STEM graduates by two years. H1B visas, sponsored by employers, and Green Cards are limited. 

An earlier study² found that because of these restrictions, only 20% of international U.S. masters graduates stay in the country for at least two years. Some return home, while others leave for countries like Canada or Australia that have more open immigration policies for highly skilled workers. For the U.S., this means losing the talent and potential that top-quality U.S. universities have helped to create.

Instead, the U.S. government and universities can take a number of steps to retain these talented graduates and increase their positive impacts locally. These steps include reducing barriers for enrolling international students in graduate programs. It also includes support for new startups and the legal means for graduates to stay in the U.S. as they build the innovative firms that help maintain U.S. leadership in business innovation.