High-Skill Immigration, Offshore R&D, and Firm Dynamics

We study firms’ decision to use foreign R&D inputs—immigrant researchers and imported R&D services—and the implications of this use for firm performance and aggregate productivity. Using Danish data, we document that firms with immigrant researchers are more likely to source foreign R&D services and that using either foreign input increases R&D efficiency and firm performance. We develop and estimate a model of firm dynamics that rationalizes these patterns. Counterfactual experiments show that the two foreign inputs play crucial yet complementary roles in R&D. Without access to these inputs, R&D participation and the aggregate return to R&D both would decrease substantially.