The Contribution of Foreign Master's Students to US Start-Ups

In this paper, we estimate the effect of increasing the share of foreign-born Master graduates on the creation of innovative start-ups in the US. We combine information on international students graduating from Master's programs by university cohort with data on start-ups created in the US between 1999 and 2020 by graduates of those cohorts. To establish a causal link, we use idiosyncratic variation in out-of-state relative to in-state fees charged by universities across Master's cohorts, resulting in differential foreign students' enrollment. We also use changes in the share of foreign students predicted by a shift-share instrument, based on university-level past networks, as an additional identification strategy. For each additional ten percentage points of foreign students graduating in a Master's cohort, we find 0.4 additional start-ups in that cohort. Then, using a name-based attribution of the origin of creators of start-ups, we find that between 30 and 45% of the total start-up creation effect is attributable to a positive spillover of foreign-born on start-up founders of US origin.