The Economic and Labour Market Impacts of Tier 1 entrepreneur and investor migrants, M Nathan, H Rolfe, C Vargas

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Content: The Economic and Labour Market Impacts of Tier 1 entrepreneur and investor migrants Report to the Migration Advisory Committee Max Nathan, Heather Rolfe and Carlos Vargas-Silva June 2013 i
Contents Acknowledgements .......................................................................................................................... ii Executive Summary ....................................................................................................................... iii Introduction ........................................................................................................................................ 1 Section 1 Evidence review ............................................................................................................ 2 1.1 Features of the literature .................................................................................................. 2 1.2 The economic impacts of skilled migration: a simple framework ..................... 3 1.3 Impacts channels for skilled migration: theory........................................................ 5 1.4 Empirics..................................................................................................................................10 Section 2 Datasets review .......................................................................................................... 18 2.1 Introduction .......................................................................................................................... 18 2.2 Labour Force Survey ......................................................................................................... 18 2.3 Financial Analysis Made Easy (FAME).........................................................................19 2.4 Other datasets with information on the racial or ethnic background of the owners ............................................................................................................................................ 23 Section 3 Tier 1 entrepreneur and investor migrants: evidence from case study research ............................................................................................................................................. 25 3.1 Introduction .......................................................................................................................... 25 3.2 Background: personal and professional .................................................................... 26 3.3 Reasons for applying for a Tier 1 visa........................................................................27 3.4 The process of applying for entry via Tier 1 ............................................................ 30 3.5 Establishing economic activity in the UK .................................................................. 34 3.6 Impacts of businesses and investments ................................................................... 37 3.7 Reflections and future plans .......................................................................................... 40 Section 4 Conclusions and implications for policy ............................................................. 43 4.1 Skilled migration: findings from the evidence and data reviews .................... 43 4.2 Tier 1 entrants: findings from the case study research ...................................... 45 4.3 Policy implications .............................................................................................................. 49 References ........................................................................................................................................ 52 Appendix 1 Table of Studies ..................................................................................................... 62 Appendix 2 Topic guide for case study interviews with entrepreneurs and investors .......................................................................................................................................... 106 i
Acknowledgements Members of the Migration Advisory Committee (MAC) and its secretariat met and corresponded with the research team at the National Institute of Economic and Social Research and Migration Observatory to develop and steer this research project. However, the quality of the research and robustness of the analysis is the responsibility of the authors, and the views presented in the report are those of the authors, not those of the MAC. We would like to thank the MAC and secretariat for their guidance and help at all stages of the research. Those involved in commissioning the research included Tim Harrison, Vanna Aldin, Jackline Wahba and Jocelyn Goldthorp. We would especially like to thank Kyle Magee who managed the project at MAC. We would also like to thank colleagues Jonathan Portes at NIESR and Scott Blinder at the Migration Observatory for their valuable input to the project. The qualitative stage of the research relied on the participation of entrepreneurs and investors who applied to come to the UK through the Tier 1 visa route. Forty nine migrant entrepreneurs and investors participated in the research, 20 through an interview and 26 through providing responses by email. A further three Interviews were carried out with holders of a different type of visa, eg Tier 1 Graduate Entrepreneur. We are grateful for the time and effort given to the research by all participants and also for their trust in disclosing details of their businesses and finances. We would also like to thank the law firms who agreed to contact their clients on our behalf and who told us about their experiences of working with Tier 1 applicants. While these were not used directly in the report, they helped us to understand some of the issues involved. The report refers to the UK Border Agency which no longer exits. Therefore all references to the Agency refer to its former status. ii
Executive Summary This report examines the economic impacts of entrepreneur and investor migrants who come to the UK through the Tier 1 route, introduced in 2008. The research for the report was commissioned by the Migration Advisory Committee (MAC) in February 2013. Tier 1 entrepreneur and investor migrants originate from outside of the European Economic Area (EEA) and the research therefore builds on previous research commissioned by MAC on the impact of migration on the UK. The research included a review of existing research both in the UK and internationally, an examination of UK datasets, and new qualitative evidence through case study interviews with Tier 1 entrepreneurs and investors. These findings are presented in Sections 1 - 3 of the report and are followed by conclusions and policy implications in Section 4. The evidence review - key findings Existing theory and international evidence suggest that the economic impacts of migration, particularly skilled migrants, run well beyond the labour market. Broadly, researchers identify 'production-side' and 'consumption-side' impacts. Production-side impacts operate on productivity and its drivers, such as entrepreneurship, investment and innovation. For example, in theory skilled migration may pre-select entrepreneurial individuals, who contribute to new business formation and new employment. More broadly, more diverse workforces may help firms generate new ideas, or better access international markets by lowering transaction costs. Conversely, migrant entrepreneurs may face discrimination or institutional constraints, and in theory, more diverse firms might exhibit lower trust within the workforce if some groups discriminate against others. Consumption-side impacts operate on the level of demand for goods and services, especially in 'nontradeable' sectors (such as local retail) and in sectors where supply adjusts relatively slowly (such as housing). By adding to local populations, migration may raise the level of demand for these goods and services; changing population composition may also alter the mix of goods and services offered. This may improve consumer choice and lower the costs of some goods where producers can scale, but could raise the costs of others where there are supply constraints. Note that it is harder to distinguish skilled migrant effects here, unless these groups' preferences are very different from other migrant groups. In principle, then, skilled migration may have positive or negative impacts on economic outcomes beyond the labour market. In practice, international evidence typically suggests these impacts are net positive, although their size is often small. The empirical evidence also suggests that the effects of skilled migrants in any given receiving country are likely to be conditioned by a) the size of the inflow, b) the specific sending countries, c) the sectors in which new migrants work, d) wider receiving country institutional and cultural factors, and e) historical, cultural and economic links between sending and receiving countries. To date we also know little about the distributional consequences of the wider impacts of skilled migrants. These are likely to be complex. For instance, entrepreneurial activity by skilled migrants may make a given sector more competitive. This may stimulate some incumbent firms to innovate, while others may exit the sector. 'Native' consumers should benefit from increased competition and iii
choice, and the economy benefits from higher innovation (and thus productivity). However, there may be employment losses to workers in exiting incumbent firms. Further research is required to better understand how these distributional impacts play out in practice. The evidence base on the wider impacts of skilled migration for the UK is notably thin, with only a handful of published research to date. Specifically, these studies on the UK find: · Evidence of skilled migrant entrepreneurship, as well as suggesting some UK-specific constraints around entrepreneurial culture; · Suggestive evidence of diaspora effects on trade and investment flows, especially for countries outside the Commonwealth where migration is linked to new trading relationships; · Evidence of skilled migrants' contribution to innovation, both in patenting and product / process innovation within firms; · Some evidence of a positive link from skilled migration to labour / total factor productivity, although this is small. These studies are in line with much of the international empirical literature, which implies that net positive effects of skilled migration are to be expected - especially given the UK's recent migration experience. However, we should stress that substantially more empirical work is needed in all of these areas in order to be confident of actual impacts. Note also that these findings apply to skilled migrants as a whole, rather than Tier 1 entrants in particular. Tier 1 entrants comprise a much smaller group of people than all skilled migrants in the UK. This implies that economic effect of the average Tier 1 entrant may be small; however, specific individuals may have large impacts via (for example) founding a number of new companies in the UK, or making major investments in a series of UK firms. The statistical review - key findings The report examines key UK datasets which may help illustrate the economic impacts of skilled migrants and Tier 1 migrants. The UK Labour Force Survey contains several key variables that may provide insight on the employment and wider impacts of skilled migrants. However, it is less straightforward to directly identify Tier 1 arrivals. Company-based datasets such as FAME (Financial Analysis Made Easy) and Companies House provides detailed information on firms' 'top teams' as well as business performance, which in theory could be linked to Tier 1 entrants to explore economic impacts of entrepreneurs and investors. 'Big Data' providers such as Growth Intel and DueDil are now beginning to combine Companies House data and other public, private and machine-learned datasets to provide even richer resources at the firm level. All of these could provide the foundations for future quantitative research. The qualitative research - key findings The primary research includes 20 interviews with Tier 1 entrants, plus email responses from a further 26. Case study entrepreneurs were engaged in a wide range of business sectors, including IT, publishing, manufacturing, the leisure industry, retail and consultancy. Many had already achieved success in their country of origin or elsewhere before coming to the UK. Investors were generally also successful business people, often internationally and were continuing to engage in iv
entrepreneurial and business activity. In practice, the distinction between entrepreneurs and investors is not clear cut, since many investors were interested in entrepreneurial activity in the UK. They had entered as investors partly to avoid the time restrictions of the entrepreneurial visa relating to business set up. The investor visa bought them time to explore business opportunities in the UK. The UK has a number of features which are attractive to Tier 1 migrants. They include its location within European markets and to other key business and trading centres, language, time zone, ease of set up, business opportunities and support and supply of skills. Personal reasons are also important, particularly for investors. These include good schools, culture and lifestyle, the people, diversity, cosmopolitanism and acceptance, the arts, rule of law and, perhaps surprisingly, the weather. The strong emotional attachment expressed by many to the UK meant they were happy to be here and had settled in well. In terms of consumption, while some had bought properties, many found property prices very high and were reluctant to buy until they were more certain of the market. Therefore, current speculation about the effect of wealthy migrants on property prices may not accurately reflect the circumstances of many newly arrived entrepreneurs of more modest means. The process of applying for a visa was generally found to be straightforward, but expensive. Some had initially not submitted the required documentation and had their applications rejected, entailing further expense. Where applications had not been successful this appeared to be for financial reasons, for example bank statements which were not satisfactory to the UK Border Agency. Some applicants had not taken up their visas or had returned home, citing a range of business and personal reasons. The economic recession had affected plans of a number of entrepreneurs. Therefore UK Border Agency records of visa holders are likely to over-estimate the number of active Tier 1 entrepreneurs in the UK. While most respondents had not found difficulty meeting the requirements for the visa, our sample is clearly biased towards successful applicants. However, some entrepreneurs had experienced difficulty raising Ј200,000. These included young entrepreneurs setting up a business for the first time. Most respondents had not reached the point of visa renewal, but many were anticipating problems, particularly in meeting the requirement to have engaged staff. The chief concern of investors was that they will not have met the 180 day a year residence requirement because their business activities frequently take them outside the UK. Although some aspects of setting up in business in the UK were found problematic, a number could draw on their previous business experience. The most serious problems encountered by respondents in setting up business in the UK involved banks, including simply opening a personal account. Problems were also reported with borrowing. Those individuals who did extensive research on the potential for their businesses before coming to the UK appeared to be making more progress than those who did not. Formal business support was not widely accessed, although a number had informal networks which included fellow graduates from masters courses. Those who had received business support and advice found this valuable, with UKTI and Scottish Enterprise both highly praised. v
Despite the early stage reached by many entrepreneurs, it was apparent that many were achieving some success. This included generating new products and services, recruiting staff, hiring freelance staff and consultants and contracting out production and service delivery. A number of businesses had hired highly skilled professional staff in areas such as IT and marketing and also administrative employees. A number had recruited local people and others were planning to do so. Investment performance, which was largely Government bonds, was reported to be poor with many having reduced in value. However, this did not seem to worry the case study investors, whose principal concerns were in meeting other aspects of the renewal criteria, in particular residency requirements. Respondents future plans largely revolved around their businesses (in the case of entrepreneurs) and wider business activities (in the case of investors). Some expressed concerns about the future business environment in the UK, particularly the prospect of disengagement from the European Union. Implications for policy The report identifies a number of implications for policy in relation the Tier 1 visa and for support to entrepreneurs and investors wishing to become established in the UK. These include: · The need for greater flexibility over the minimum fund requirement of Ј200,000 for entrepreneurs, in order not to deter younger people setting up in business for the first time. · The need for review of the difficulties experienced by migrant entrepreneurs with banks, both in opening personal accounts and in borrowing. · The benefits of having greater flexibility between the entrepreneur and investor categories so as not to discourage entrepreneurial activity by investors and vice-versa. · Business support to entrepreneurs before and after application, through coordinated working by the UK Border Agency and BIS/UKTI. · The use of greater discretion by the UK Border Agency (with input from BIS/UKTI) over achievement of milestones during the visa renewal process, in recognition of the difficult current climate for business, relatively slow growth of some types of businesses and impact other than hiring staff. · Re-consideration of the 180 day residency requirement, given the international business activities of many investors and review of the practice of retaining passports for lengthy periods during renewal. · The importance of continuing to convey the UK as a place to do business to prospective entrepreneurs and investors, particularly given current uncertainty over future membership of the EU. vi
Introduction The research presented in this report was commissioned by the Migration Advisory Committee (MAC) to improve the existing evidence base on the impact of highly-skilled migration on the UK Economy. The specific focus of the research is on migration into the UK of entrepreneurs and investors. It is focused on the impact of migration from outside the European Economic Area (EEA) and builds on work relating to the social, economic and public service impacts of migration previously commissioned by the MAC and outlined in its reports, including by NIESR (George et al, 2012). The report presents quantitative and qualitative evidence on migration to the UK of entrepreneurs and investors, with the qualitative research focusing on migrants who have entered the UK through the Tier 1 visa route, introduced in 2008. The report is divided into four sections: Section 1 summarises existing theory and evidence on the economic impacts of high-skilled immigration in receiving countries. It describes the search methodology and some key features of the literature, sets out a simple framework for thinking about the impacts of high-skilled migration on the economy and then fills out this framework, focusing on entrepreneurship and investment channels. It then summarises relevant empirical evidence, both internationally and for the UK where studies exist. Section 2 briefly reviews pertinent UK datasets and presents some high-level descriptive analysis from the LFS and FAME datasets. Section 3 presents the findings of case study research with Tier 1 entrepreneurs and investors. Finally, Section 4 reflects on the findings from the three stages of the research, drawing some conclusions and implications for policy. Annex 1 of the report summarises the literature surveyed while Annex 2 contains the topic guide used in interviews with entrepreneurs and investors. 1
Section 1 Evidence review 1.1 Features of the literature This is a young field, with the vast majority of published material appearing in the last five years (especially from 2011). Our search therefore covered both published material and work in progress, focusing on the economic literature and studies looking at receiving / host country effects. Published material was sourced through search engine enquiries, trawls of relevant research centres, and trawls of Government and international agency-published research. Work in progress was found via 'snowballed' enquiries through the project team's contacts and networks. Following discussions with the MAC we pay particular attention to entrepreneurship and investment channels. The empirical focus is on 'advanced economies' / the global North. UK studies are highlighted, and we assess other studies' implications for the UK. A complete table of usable results is included in the appendix. We have not included documents written purely from a policy or marketing perspective unless these include research. Relevant research was assessed using four criteria: 1) is there a clear account of the research process? 2) are the methods appropriate and reliable? 3) is the data of good quality? 4) are the findings credible and clearly related to the evidence? In total we covered around 150 papers, books and reports. The literature reviewed is a mixture of quantitative and qualitative studies, drawing on large-scale data sets, surveys, case studies and in some cases historical analysis. The field focus is on economics, but we have also drawn from other relevant fields (such as geography, urban studies, business and management, entrepreneurship, innovation, and housing studies). In the past few years, the literature shows a substantial growth in papers using quantitative research and econometric methods and a shift towards exploring host country impacts beyond the labour market. Specifically,researchers have begun to shift their attention from labour market and fiscal changes, towards exploring the wider effects of migration on productivity and growth - and the role of high-skill migrants in these processes (Chiswick, 2005, Huber et al., 2010b , Kerr and Kerr, 2011, George et al., 2012, Hanson, 2012, Lewis, 2012). Links between high-skilled immigration and innovation have been a major focus of this 'wider impacts' literature to date (Kerr and Kerr, 2011). There is also increasing interest in high-skilled entrepreneurship, for example 'transnational entrepreneurs' and start-up founder teams (Acs and Szerb, 2007, Saxenian and Sabel, 2008, Drori et al., 2009, Honig et al., 2010). This is a shift from a long tradition of research on migrant and ethnic entrepreneurship, which has tended to focus on small business formation in non-tradeable sectors such as retail and leisure (Light, 1984, Rath and Kloosterman, 2000, Kloosterman and Rath, 2001, Ram and Jones, 2008). Similarly, research looking at the connections between migration, trade and investment flows is increasingly focused on specific high-skill diasporic communities as enablers of market access (Hanson, 2012). Other research has looked at impacts on the prices of housing and other local goods/services, although these studies are rather less common. 2
Finally, there has also been a growing interest in local level effects, with geographers, economists and others exploring how migration is influencing city life and urban economies (Card, 2010, Smallbone et al., 2010, Syrett and Sepulveda, 2011, Nathan, 2012). 1.2 The economic impacts of skilled migration: a simple framework Analysis of the economic impacts of migration has tended to concentrate on labour market or fiscal impacts (Kerr and Kerr, 2011). These analyses typically feature neoclassical settings, where migrants have single roles (workers or consumers of public services), and modelling is restricted to one-off shocks and adjustment periods (Borjas and Doran, 2012a). This approach ignores or underplays several wider economic impacts of migration, especially for skilled migrants. We adapt Chiswick (2005) Huber et al (2010a) and Hanson (2012) to contrast a static, labour demand-and-supply setting with a dynamic growth setting. First, consider the static 'labour markets' setting. In a given host country, a set number of firms' productivity is determined by labour costs, plus fixed technological capacity and trade costs. Migrants enter the country solely as workers, and are perfect substitutes with natives. In this model, skilled migration has limited economic impacts. In small open economies (such as the UK) a net migration shock will increase the labour supply, and temporarily bids down the average native wages. If wages are sticky, native employment may also fall. Over time, natives' wages and employment rates should readjust to their pre-shock levels via international capital flows, and the expansion of labour-intensive sectors (Card, 2005, Dustmann et al., 2008). If the migration shock consists of (un)skilled workers, this will depress the relative wages of (un)skilled natives, and raise those of (higher) lower-skilled natives. For firms, migration helps labour productivity by cutting labour costs. But migration has no wider effects, as other productivity shifters are exogenous. Next, consider a dynamic 'growth' setting. Here, firms can change their labour costs, and their innovative capacity and trading environment. Endogenous growth models show how human capital helps generate new ideas, which advance the technological frontier and feed into productivity gains (Lucas, 1988, Romer, 1990). Firms that invest in research and development can thus build innovative capacity and raise productivity, but may face informational / financial constraints in doing so. Trade costs are now partly determined by information asymmetries and co-ordination problems, and firms that can lower these will raise productivity (and subsequently gain market share) (McCann and Acs, 2011, Hanson, 2012). Existing firms also face competition from entrepreneurs, who create businesses around new ideas (Schumpeter, 1962, Aghion et al., 2009). In this setting, skilled immigration - in particular - has several impacts on both the production and consumption sides of the economy. For example, access to knowledge and ideas may be highly uneven, national entrepreneurial `capacity' may vary, and features of innovation ecosystems may constrain ideas diffusion (Acs et al., 2004, Agrawal et al., 2008). This opens up space for skilled / entrepreneurial individuals to contribute to knowledge generation, and for international networks to help diffuse innovations across space. Equally, complex global production chains imply high search, transaction and management costs (Mudambi, 2008). Intermediary actors - such as skilled migrants may help firms access new markets, and co-ordinate complex business activities (Saxenian and 3
Sabel, 2008). Similarly, production complementarities between skilled migrants and natives may raise the return on capital, and in doing so, generate higher savings and FDI inflows (Chiswick, 2005, Peri and Sparber, 2011). All of these channels will contribute to productivity and/or competitiveness, in the sense of increased market share for firms in the receiving country (Hanson, 2012). These channels require relaxing some assumptions from the static framework (Huber et al., 2010a). Specifically, migrants can act as entrepreneurs and investors as well as workers; migrants have financial, social and network capital, as well as human capital; and migrants and natives can be imperfect substitutes.1 When thinking about these issues it is useful to think of `production' and `consumption' side impacts (Nathan, 2012). Production-side channels impact productivity and its drivers, and may operate at various levels. First, individual migrant status may pre-select entrepreneurial individuals, who contribute to new business formation and/or uncover new market niches (Bonacich, 1973, Honig et al., 2010); or very high human capital 'stars' who contribute to innovate (Borjas, 1987, Zucker and Darby, 2007). Individual high net worth entrants may also be able to ease domestic firms' capital constraints. Second, firms hiring a 'star' researcher or scientist may be able to significantly raise their productivity - at the expense of other firms (Hanson, 2012). More broadly, diverse workforces may have an advantage in generating innovative ideas, particularly in high-skill, knowledge-intensive sectors (Fujita and Weber, 2003, Page, 2007, Nathan and Lee, Forthcoming). Firms in high-value sectors may further benefit from skilled migrants' access to co-ethnic networks, which may assist knowledge diffusion, or lower co-ordination costs and thus improve international market access (Kapur and McHale, 2005, Saxenian, 2006, Saxenian and Sabel, 2008, Foley and Kerr, 2011). Third, we may see indirect / spillover effects at sector or market level. Migrant entrepreneurs may spur competition in domestic markets, forcing incumbents to innovate and raise their productivity (Aghion et al., 2012). Diversity and diaspora externalities within specific firms may also assist all firms' innovation, via further knowledge spillovers across sectors (Jacobs, 1969, Jaffe, 1996). Similarly, activities of migrant entrepreneurs and investors, and changes in specific firms' market access, may shift overall patterns of trade and FDI between home and host countries (Docquier and Rapoport, 2012). On the consumption side, impacts of skilled migration are harder to distinguish. At a local level, high levels of net migration may raise the level of demand for non-tradeable goods, and/or change patterns of demand in these sectors (Mazzolari and Neumark, 2012). Migration may also increase competition for goods with inelastic supply such as housing, raising local prices. (Saiz, 2003, Ottaviano and Peri, 2006). 1 There is strong empirical evidence for the last of these, particularly for skilled migrants. See e.g. MANACORDA, M., MANNING, A. & WADSWORTH, J. 2012. The Impact of Immigration on the Structure of Male Wages: Theory and Evidence from Britain. Journal of the European Economic Association, 10, 120-151. for the UK or for the US, PERI, G. & SPARBER, C. 2011. Highly Educated Immigrants and Native Occupational Choice. Industrial Relations, 50, 385-411. 4
1.3 Impacts channels for skilled migration: theory This section sets out production side and consumption side impact channels of skilled migrants in more detail, focusing on entrepreneurship and investment channels. Entrepreneurship There is an established 'ethnic entrepreneurs' literature linking migrant and minority communities to self-employment, entrepreneurial activity and small business formation. Migrant and minority ethnic communities have a generally higher propensity to be self-employed (Light, 1984, BaycanLevent and Nijkamp, 2009). Levels of enterprise are influenced by access to opportunities, individual and group characteristics (such as ethnic and class 'resources'), and emergent strategies (Aldrich and Waldinger, 1990). Urban location may help ethnic enterprise because of urban demography (larger downstream markets) and/or greater economic opportunities (greater matching, sharing and learning economies) (Light, 2004, Kloosterman and Rath, 2001). Ethnic entrepreneurship may be reactive: exclusion from mainstream economic life may force groups into developing new businesses, products and services (Kloosterman and Rath, 2001). Conversely, community characteristics and attitudes may drive proactive entrepreneurship. For example, `middleman minority' [sic] status may help individuals create business opportunities between social groups (Bonacich, 1973). Alternatively, entrepreneurs may benefit from externalities of migrant enclaves, such as better access to information or finance (Edin et al., 2003). This literature is not concerned with human capital per se: individual migrant entrepreneurs may be highly skilled individuals, or low-skilled actors entering sectors with low entry barriers (Sepulveda et al., 2011). A more recent set of studies focus more closely on skilled migrants, and identifies two further channels. The migration decision involves balancing risks against expected future returns, so migration may positively select highly skilled and/or highly entrepreneurial individuals (Borjas, 1987). Migrants also face a lower opportunity cost of investing in new skills or ways of working, so migrants may be more flexible economic actors - for example, more willing to engage in disruptive business models (Duleep et al., 2012). Skill-biased migration policies will then help to bring in highly skilled and/or entrepreneurial `stars' into host economies. In closed economies, externalities from co-ethnic enclaves or groups may be limited by group size or External Constraints (see below). However, under globalisation, transnational diasporic groups may provide an important source of social and cultural capital (Docquier and Rapoport, 2012). Equally, highly skilled and motivated transnational entrepreneurs can set up new enterprises in a number of locations, or act as go-betweens between domestic firms and those in 'home' countries (Kloosterman and Rath, 2003, Saxenian, 2006, Zhou, 2004, Drori et al., 2009, Honig et al., 2010). In theory, all four of these channels may be constrained. First, apparent effects of skilled migrant / minority status may simply collapse to individual human capital endowments, or wider structural conditions (Hunt and Gauthier-Loiselle, 2010). Second, discrimination may limit opportunities for business creation, even in reactive contexts; and may limit opportunities for middleman-type arbitrage. Third, in closed economy settings, enclave externalities may also be limited by size (the smaller the group, the smaller the set of within-group matches (Zenou, 2011)). Finally, 5
disapora/enclave affordances may be weaker than other factors (such as class or family ties); and some trans-national communities may be more organised and effective than others. The main effect of migration-entrepreneurship channels will be on levels of business creation. There may also be wider impacts. First, new firm entry increases market competition, and may stimulate incumbent firms to innovate in response (Aghion et al., 2005). Second, net firm entry itself accounts for a large share of national productivity growth, so higher levels of entrepreneurship may be shortterm productivity-enhancing (Lewis, 2012). The literature does not discuss distributional impacts of skilled migrant entrepreneurship, but we can sketch out some issues here. One key point is whether new migrant businesses add to or displace existing firms. To the extent that (skilled) migrants identify new opportunities, the net effect is likely to be additional; however, to the extent that new opportunities are also disruptive, additionality is limited. More broadly, the process of firm entry may be welfare-enhancing for consumers, if entrants stimulate stronger incumbents to innovate and weaker firms to exit (Aghion et al., 2005). However, this incurs welfare losses for owners and staff in lagging domestic firms. Investment Skilled migrants may play a number of investment-related roles, both at the level of individual firms and in terms of higher-level patterns of trade and FDI. However, while trade and FDI mechanisms are relatively well covered in the literature, individual-level channels are much less discussed. Migrants who are high net-worth individuals, and who enter a host economy as investors should be able to ease capital constraints for domestic firms. Related to this, investment may trigger knowledge spillovers between investors and recipients: skilled investors who have sector-specific expertise may also have impacts on recipient firms' innovation and productivity (Markusen and Venables, 1999, Markusen and Trofimenko, 2009, Malchow-Mшller et al., 2011, Giannetti et al., 2012).2 Over time, migration may alter the level and pattern of trade and Foreign direct investment (FDI) flows between host and home countries. Incomplete information creates trade frictions: migrants bring improved international market knowledge, leading to better matching of buyers and sellers (Rauch and Trindade, 2002, Rauch and Casella, 2003, Peri and Requena, 2010). Diasporic /co-ethnic networks also raise trust, providing effective means of contract management and enforcement (Javorcik et al., 2011). Alongside these 'information channels', migrants also create a 'preference channel', by demanding goods from the home country (Combes et al., 2005). The size of trade effects with a given sending country will partly depend on the size of migrant community in the receiving country. Skilled migrants may also play particularly important roles in these channels: skilled migrants are likely to have both better information on business opportunities, better social capital and professional networks (Kugler and Rapoport, 2007, Saxenian and Sabel, 2008, Docquier and Lodigiani, 2010, Mundra, 2012). 2 By contrast, low-skill migration may act as a substitute for investment in physical capital (see 4.5). 6
As with trade flows and FDI inflows, skilled migrants can also provide domestic investors with additional information on 'home' market investment opportunities, reducing transaction costs (LeBlang, 2011, Pandya and Leblang, 2012). Skilled migration may thus help reduce equity home bias (Foad, 2011). Similarly, skilled migrants may provide matching and brokering functions that help multinational firms develop and manage overseas investments (Foley and Kerr, 2011). As with the entrepreneurship channel, there are a number of potential constraints on these channels, sothat skilled migration is a priori ambiguous in its effects on investment. First, discrimination from majority groups may limit migrant investor entry, or investment opportunities in host markets. Second, it is important to disentangle co-ethnic networks from other socio-cultural resources that skilled / well-off individuals may possess. Third, some migrants may more valuable than others - those from countries where strong trade links already exist may bring little or no additional advantage (Girma and Yu, 2002). Finally, theoretical frameworks are often silent about how domestic firms interact with migrant investors, or access the diasporic communities that may influence trade and investment flows. Innovation Innovation is `the successful exploitation of new ideas' (Department of Innovation Universities and Skills, 2008), and involves both ideas generation and commercialisation (Fagerberg, 2005). In turn, this suggests a number of ways in which skilled migrants might influence innovative activity. First, as in the entrepreneurship channel, the migration decision might positively select high-skilled 'stars' (Borjas, 1987). Entry may be via skilled migration policies or via higher education, especially into postgraduate courses (Chellaraj et al., 2008, Stuen et al., 2012) and faculty research positions (Hunt, 2011). Research-intensive fields such as science and engineering are particularly relevant for these star-innovation channels (Stephan and Levin, 2001). Star scientists have a disproportionate impact on knowledge creation, by raising research grants and engaging in multiple collaborations, especially with other stars (Zucker and Darby, 2007). Second, at firm level, the ethnic / cultural diversity of teams may generate externalities that contribute to knowledge creation. Specifically, diverse teams may be more effective than homogenous teams in problem-solving or generating new ideas, as they leverage a wider pool of perspectives and skills (Berliant and Fujita, 2009, Page, 2007). These dynamics may be particularly important in research-based or knowledge-intensive activities (Fujita and Weber, 2003). Third, diasporic networks may contribute to knowledge diffusion, in similar ways to their potential effects on entrepreneurship, trade and FDI flows. Networks reduce information and communication costs as knowledge is exchanged through groups with greater mutual understanding and trust; they may also aid knowledge spillovers by stimulating citations and ideas recombination through the network structure (Jaffe and Trajtenberg, 2002, Kerr, 2008, Docquier and Rapoport, 2012). Skilled migration may also have wider, indirect effects on innovation. As above, if migrant entrepreneurship leads to significant new firm entry, this may lead incumbents to innovate. . Withinsector spillovers may also trigger wider spillovers between sectors, particularly in urban 7
environments (Jacobs, 1969, Duranton and Puga, 2001). Knowledge spillovers tend to be highly localised (Jaffe et al., 1993, Audretsch and Feldman, 1996). This suggests that at least some immigration-innovation effects may be spatially clustered, and largest in urban areas or researchrich locales (such as university towns). But diaspora channels will be much less distance-sensitive. Against this, there are reasons why migration-innovation channels may be limited. A diverse team may find it harder to communicate, and levels of trust may also be lower (Alesina and Ferrara, 2005). Diverse organisations may also face discrimination from other market actors. As a result, organisations may find it harder to make decisions or allocate resources, and the quality of those decisions may be lower than in more homogenous organisations. Similarly, if knowledge flows only within diasporic communities, this will limit the scope of knowledge spillovers. Borjas and Doran (2012a, 2012b) also suggest that innovation-related externalities can co-exist with distributional losses for some groups. For example, if research jobs and lab space is limited, migrant inventors may compete with native inventors for these resources. Even if there are gains from individual stars, networks or group-level diversity, some 'losers' may need to shift field ('cognitive mobility') or exit into less-skilled activity ('bumping down').3 Other production-side channels Two other production-side channels are less well covered, but are worth mentioning briefly here. First, if firms' production functions are endogenous to changes in the labour supply, then employers may react to immigration by making changes to production technology. Lewis (2011) sets out a model in which low-skilled migrants are substitutes for capital investment. Migration-induced labour supply shocks then induce firms to develop more labour-intensive production techniques. This smoothes any negative wage impacts of low skill migrants, but may constrain longer-term gains in firms' TFP via capital upgrading. Conversely, high-skilled labour may be complementary to capital investment - for example, skilled researchers may complement lab equipment for scientific research. This suggests an additional channel for high-skill migration may induce TFP gains on top of those already discussed above (Paserman, 2008, Kangasniemi et al., 2012, Peri, 2012). A second source of TFP gains is production complementarities via increased task specialisation. If migrants and natives are imperfect substitutes, then high-skill migration may induce both skill groups to shift tasks in a team or workforce setting (Peri and Sparber, 2011, Lewis, 2012). In this case, skilled migration may lead to 'cognitive mobility' by individual native workers (see section 4.4) but human capital spillovers and TFP gains at the firm level. Consumption side Impacts of migration on the consumption side largely focus on fiscal impacts, (see Card (2010) and Kerr and Kerr (2011) for reviews). Here, we briefly review how skilled migration might influence prices, the variety of goods and services, and public service usage. 3 Note that while cognitive mobility may be welfare bad for movers in the short term, movers may gain long term (in the case of Borjas and Doran's study, many movers leave academia to work in hedge funds). 8
Prices In theory, migration has an ambiguous effect on the prices of goods and services (Frattini, 2008). Migration might lower production costs through cheaper labour and/or production externalities, particularly in labour-intensive sectors (Cortes, 2008, Baghdadi and Jansen, 2010). In turn, this should lower the prices of goods and services in those sectors. However, migration also increases population size and so raises the level of consumer demand. These 'scale effects' are likely to be biggest for non-tradeable sectors (Mazzolari and Neumark, 2012). If inflows are large enough to facilitate economies of scale in production, prices may fall. Alternatively, if goods are inelastically supplied, such as housing, migration may lead to higher prices (Saiz, 2003, Saiz, 2007). The supply-side effect of skilled migrants on prices is harder to determine. The general migrant population may cluster in labour-intensive sectors - predominantly non-tradeables - helping to lower production costs, wages and prices in those sectors (Cortes, 2008). However, skilled migrant entrepreneurs and investors likely operate mainly in higher-value, tradeable sectors where local conditions matter less. This suggests that supply-side impacts on prices are likely to be limited. Demand-side impacts of migrants on goods such as housing will depend on a) the size of the inflow b) migrant preferences and behaviour c) producer response d) native response. In the short term, migrants and natives compete for a fixed stock of housing, increasing costs. In the longer term, developers respond by building more, offsetting these price movements (Saiz, 2007, Card, 2010). Migrant/native preferences may also differ. Migrants may be most likely to rent, at least in the short term, so impacts on house prices may be limited for these reasons. Within cities, house prices and rents may also be affected by native response - for example, if natives leave areas where migrants live, so that net population falls, this will likely put downward pressure on prices and rents in those areas (Saiz, 2011, Saiz and Wachter, 2011). Higher overall demand at area level may then be combined with by greater price variation and increased segregation within that area. Again, it is not straightforward to identify specific impacts of skilled migrants: poorer /less-skilled migrants are more likely to share properties, and so consume less housing than natives. Higher-skilled migrants might then consume similar quantities of housing to natives. Mix / variety If migrants have different preferences to natives, this will generate 'composition effects' on the set of goods and services provided (Mazzolari and Neumark, 2012). Mazzolari and Neumark also suggest that migrants may have comparative advantage in production on 'ethnic' goods, through specific knowledge and/or entrepreneurial skills. In this scenario, migration leads to both greater variety and higher migrant business entry: we would expect skilled migrant entrepreneurs to play an important role in these channels. A native population with a taste for diversity may also support these composition effects (Florida, 2002, Gordon et al., 2007). Conversely, if migrant inflows are large and lead to substantial increases in demand, this may trigger production-side economies of scale which lead to producer consolidation (Mazzolari and Neumark, 2012). In this case, the variety of goods and services may rise but the variety of producers shrinks (for example, if small shops are replaced by supermarkets). 9
Public services Public service impacts of migration can be framed similarly to private goods and services, with the critical difference that production cost shifts and resource competition will not be reflected in user prices, but forms of non-price rationing. Migration 'shocks' which change population composition may also lead to short term mismatches between user demand and services offered, while in the longer term producers respond by switching the service mix (e.g. in schools, greater support for ESOL provision). Again, the key issue is whether skilled migrants have distinctive preferences and patterns of use. We speculate that some high-skilled (and better-off) migrants might be less likely than natives to use public services. But ultimately this is an empirical question. 1.4 Empirics Entrepreneurship The international evidence ­ mainly from the US ­ highlights the importance of large and skilled diasporic communities in influencing firm formation in host countries. First, a number of case studies trace links between US-based diasporas and transnational entrepreneurs and `home' countries such as India, China, Taiwan, Ireland and Israel (Kapur and McHale, 2005, Saxenian, 2006, Saxenian and Sabel, 2008). These studies typically find positive links between diaspora presence, US firm formation, and a range of wider benefits to US firms (discussed further in sections 5.2 and 5.3). Second, structured surveys examine high-skill communities in the US. Saxenian (2002) finds that that skilled migrants make up 1/3 of the Bay Area's engineers, with two-thirds born in Asia and three quarters of these from China and India. In 1998, Chinese and Indian engineers were senior executives at one quarter of Silicon Valley's technology businesses; these immigrant-run companies collectively accounted for more than $26.8 billion in sales and 58,282 jobs. Anderson and Platzer (2007) find that migrants have started 25% of US VC-backed public companies, and 40% of VCbacked technology firms. Wadhwa et al (2008) find that both immigrant firm founders tend to have both advanced STEM education and `high rates of entrepreneurship and innovation' ­ although the same is also true of US-born founders. Working with a sample of 1300 `high-impact' technology firms and 2000 founders across the US, Hart and Acs (2011) find around 16% of firms have at least one immigrant founder; over three quarters of these are now US citizens. Third, some US econometric studies try to identify a `skilled migrant' effect at individual or firm level. Hunt (2011, 2013) performs a number of individual-level analyses on skilled migrants. Looking at the 2003 US National College Survey, she finds that immigrants are more likely to start companies than similar natives, and those who entered on a student/trainee or a temporary work visa have a large advantage over natives in wages, patenting, and publishing. Much of this is explained by immigrants' higher education and field of study. Analysis of the 2009 and 2010 American Community Surveys suggests that `immigrants from the highest income countries are the best and brightest workers.' Hart and Acs (2011) perform ANOVA on their `high-impact' firms sample, finding similar levels of economic and technological performance between firms with migrant founders and those without. Immigrant-founded firms are more likely to report that they have a strategic relationship with a foreign firm. Kerr (2008) develops this idea in more detail, finding causal links from high-tech ethnic 10
entrepreneurs to higher manufacturing output in foreign countries, especially China. In calibration exercises, Duleep et al (2012) find positive links from skilled migrants to job creation, business entry and immigration across US sectors and the US workforce. Other relevant studies suggest salient differences between migrant groups and national contexts. Schuetze and Antecol (2007) use a Borjas-type model to look at self-employment among new migrants in Australia and Canada. They find self-employment rates for a given cohort typically catch natives within 10-20 years of arrival. Institutional and market structure factors are the most substantial determinants, although policy differences play a role at the margin. Georgarakos and Tatsirimos (2009) suggest that Mexican and other Hispanic immigrants to the US tend to move into entrepreneurship from unemployment or inactivity. Guerra and Patuelli (2011) find significant spatial network externalities between migrant entrepreneurs in Swiss municipalities, and some urban-rural differences. For Denmark, Marino et al (2012) find that workforce ethnic diversity leads to entrepreneurship in financial and business services. Implications and evidence for the UK What do these results imply for the UK? They suggest that the presence of large, skilled diasporas is likely to have positive effects on levels of entrepreneurship (and on other economic outcomes we care about). Non-EEA migrant communities ­ such as entrants from India, China and other south/east Asian countries ­ may be particularly important players as they are in the US, with other sending countries much less prominent contributors of skilled people. Notably, migrant entrepreneurs enter through the migration system but also through higher education. However, there are specific features of the US experience that may not transfer to the UK: in particular, the importance of Cold War defence funding in generating a critical mass of science and engineering activity, US global leadership in a large number of technology/research fields, and the perception of an enterprise-friendly culture in the States. In skilled sectors where the UK has some comparative advantage ­ for instance, parts of the creative and digital economy, as well as some parts of science and engineering ­ there may be more of a gravitational pull for skilled migrants. We might also expect to see spatially concentrated inflows to centres of research excellence, and to cities with the biggest market opportunities. (Given current economic conditions in some southern European countries, we might expect similar skilled inflows from within the EEA.) The available UK evidence bears out some of these points. Levie (2007) uses data from the GEM survey to look at individual-level determinants of entrepreneurship in the UK. OLS regressions show migrant status increases the odds of entrepreneurial activity, but that minority ethnic status only has a marginal effect. Working with a repeat cross-section of London firms, Nathan and Lee (Forthcoming) find suggestive evidence linking migrant status to proactive entrepreneurship. Other studies suggest that UK-specific cultural factors may constrain the impact of migrant entrepreneurs. Godley (2001) is a historical analysis comparing Jewish immigrants in London and New York. He finds that the latter group were more likely to move into entrepreneurial occupations, a fact he ascribes to differences in the two cities' cultures ­ and specifically a `relatively antientrepreneurial culture' in London. Along similar lines, Fairlie et al (2012) compare economic outcomes for skilled Indian-origin communities in latter-day UK, Canada and the US, using OLS 11
regressions on Census data. They find that Indian entrepreneurs in the US have above-average business incomes; around 50% of the difference is explained by education, and around 10% by differences in industry choice. By contrast, Indian-origin entrepreneurs in the UK and Canada are less well-educated, have lower than average incomes but are more likely to hire employees. There is also a long-standing UK empirical literature on `ethnic entrepreneurship', largely small-scale / explorative case studies (Basu, 1998, Basu and Goswami, 1999, Clark and Drinkwater, 2000, Basu, 2002, Ruef et al., 2003, Basu, 2004, Jamal, 2005, Altinay and Altinay, 2008, McEvoy and Hafeez, 2009, Clark and Drinkwater, 2010 , Crick and Chaudhry, 2010, Wang, 2010, Wang and Altinay, 2012). The most relevant points emerging from this literature are: migrant status / ethnicity is important to entrepreneurial outcomes; it is hard to disentangle from intervening factors, such as class, education, financial resources, strengths of networks; and there are substantial differences between migrant communities / co-ethnic groups' resources, and thus in their levels of entrepreneurial activity. Investment There is now a substantial empirical literature on skilled migrants, investment and trade. These tend to focus on cross-country analyses of aggregate trade and FDI flows. There are fewer studies looking at the individual/group level, and nothing that we are aware of on individuals' investment decisions. Three main findings emerge from the international empirics. First, several studies suggest that international investors pass on knowledge and expertise to firms they are involved with. For instance, Markusen and Trofimenko (2009) use plant-level data from Colombia to show significant learning externalities from foreign trainers to local workers, which raise native wages and valueadded. Similarly, Malchow-Mшller (2011) et al use a diff-in-diff strategy to show that Danish firms which hired foreign experts became more productive and increased their exports of goods and services. Giannetti et al (2012) look at firms in China who hire directors with foreign experience (returning migrants). They show that firms with such directors have higher valuation, productivity and profitability; better corporate governance; and higher levels of international market activity. Nielsen (2010) looks at demographic diversity in founding teams for US technology start-ups, showing a correlation between diversity and subsequent foreign market entry (and after that, higher levels of business performance). Many technology sector investors, especially in the US are former serial entrepreneurs who bring both financial and human capital to their portfolios (Kerr et al., 2010). These knowledge spillovers may also operate inside large firms. Foley and Kerr (2011) suggest that skilled migrants working in multinationals help those firms expand and co-ordinate investment activity in their native countries. Using data for 645 US MNEs in 45 countries, they show that increases in `ethnic patenting' are linked to rising shares of affiliate activity in the relevant sending countries, helping those firms become more competitive. Second, skilled migrant presence changes the balance of VC funding and equity holdings, much of which will be driven by individual investor decisions. Leblang (2011) and Pandya and Leblang (2012) focus on venture capital investments. Using cross-sectional data, they show significant associations between diaspora network presence and the level of VC flows from US investors. They suggest these 12
results derive both from US-based migrants, and from diaspora members advising US VC firms about opportunities in sending countries. Similarly Foad (2011) looks at equity holdings data for 28 countries between 1997 and 2004. Using a gravity model and instruments, he shows that immigration helps increase foreign equity holdings and reduced home bias. The effects are strongest within the Eurozone, and disappear for less developed countries. Foad argues that reduced home bias in equity positions represents a substantial welfare gain, reducing risk and improving matching. Third, and, building on the seminal paper by Rauch and Trindade (2002), a number of studies show positive effects of skilled migrants on trade and FDI flows, especially for differentiated goods. For instance, Egger et al (2012) use a quasi-experimental approach for 100 countries between 1991 and 2000, showing that highly concentrated skilled (or unskilled) migrants induce higher trade flows ­ particularly for differentiated goods. Mundra (2012) focuses on immigrant occupational structure, finding that higher shares of migrants in professional occupations significantly increases trade flows between the US and trading partner countries ­ particularly for differentiated goods. Peri and Requena (2010) focus on trade for Spanish provinces, 1995-2008, finding that immigration significantly raises trade ­ particularly for differentiated goods and for countries culturally distant from Spain. A related cluster of empirical studies look at FDI flows: Kugler and Rapoport (2007) show that skilled migration from a country helps raise future FDI inflows to that country, and suggest that skilled migrants and FDI flows are complementary trade components (while unskilled migrants are substitutes for FDI). Docquier and Lodigiani (2010) and Javorcik et al (2011) also show strong network externalities from large skilled diasporas on FDI inflows to sending countries. Implications and evidence for the UK The size and scope of the international evidence suggests that we should expect similar impacts on both individual investment decisions and wider trade/FDI flows from skilled migrant presence in the UK. In the first case, policies such as the Tier 1 (investor) programme could be expected to trigger knowledge spillovers a) from investors to portfolio firms, and b) from investors to investors, the latter showing up in patterns of VC finance and equity holdings. The available evidence also implies that aggregate effects will be strongest for skilled migrant communities from countries where few or no trade relationships exist (and where information gaps are greatest), and weakest for sending countries where there are strong existing connections (and thus fewer gains to trade). In this sense, investment channels differ from entrepreneurship / innovation channels, where existing diasporic / co-ethnic connections generate the effects. Three UK studies provide some evidence for this. Parsons (2005) projects the impact of A8 migration on EU-15 trade flows, suggesting that accession will increase imports from accession countries by 1.4% and exports by 1.5%. Di Simone and Machin (2012) find some evidence of diaspora externalities, with a significant correlation between migrant stocks and trade activities in respective sending countries. Girma and Yu (2002) compare trade effects of migration to the UK from Commonwealth and non-Commonwealth countries. They find that non-Commonwealth migration has a significant export-enhancing effect in the UK, but there is no effect from Commonwealth country migrants. They suggest that this is because non-Commonwealth migrants bring new information to UK economic actors, reducing the costs of trade, whereas UK-Commonwealth trade patterns are already well established. 13
Innovation There are now a number of empirical studies linking skilled migrants, migrant/minority communities and innovation, particularly from the US. European and UK studies are thinner on the ground. First, a number of studies link high-skill migrants ­ including students ­ to knowledge creation. Stephan and Levin (2001), Chelleraj et al (2008) and Wadhwa et al (2008) highlight the contributions of Indo and Chinese-American scientists to US science, particularly foreign graduate students; Kerr and Lincoln (2010) identify links from skilled migrant entry to patenting by ethnic Indian and Chinese inventors; Stuen et al (2012) identify causal links between foreign PHD presence and subsequent highly-cited publications. However, Hunt (2011) and Hunt and Gauthier-Loiselle (2010) find that individual `migrant effects' are largely explained by education and industry hiring patterns. More broadly, some area-level studies find links between skilled migrant presence and innovation, for example Peri (2007) and Hunt and Gauthier-Loiselle (2010) in the US, Ozgen et al (2012) for EU regions, or Niebuhr (2010) for German regions, the latter two using patent data. Second, there are strong empirical links from co-ethnic communities to knowledge diffusion (see Docquier and Rappoport (2012) for a recent review of the empirical literature). Many of the entrepreneurship case studies discussed previously also trace links between US-based diasporas and innovation `home' countries such as India, China, Taiwan, Ireland and Israel (Kapur and McHale, 2005, Saxenian, 2006, Saxenian and Sabel, 2008). Quantitative studies also identify links between coethnic communities and industrial performance in home countries (Kerr, 2008), as well as the spread of `breakthrough technologies' in US cities (Kerr, 2010). Scellato et al (2012) find strong associations between the presence of internationally mobile researchers and the quality and scope of networks across the US and Europe. By contrast, Agrawal et al (2008) find that physical location is up to four times more important for knowledge diffusion than co-ethnic connections. Third, there is some tentative evidence of diversity-innovation links. There is a large management literature testing small-sample correlations between aspects of diversity and business performance (see Page (2007) for a review). A handful of quantitative studies link ethnic diversity and innovation at group or workforce level. Some of these find correlations (Ostergaard et al., 2011) or causal links between team composition and product or process innovation (Ozgen et al., 2011, Parrotta et al., 2011). Others find no such connections (Marй et al., 2011). A related study is Hoogendoorn and Van Praag (2012), which uses experimental evidence from Dutch students to show a positive effect of ethnic diversity on team performance. A couple of area-level studies also identify links between skilled migrant diversity and innovation, for example Ozgen et al (2012) for EU regions. Implications and evidence for the UK Again, the scope of the international evidence suggests that skilled migration should induce some of these innovation effects in the UK. As with the entrepreneurship literature, the US experience implies that HE is an important entry point for skilled migrants who go on to innovate, both for faculty and the much larger numbers of research / postgraduates. Resulting diasporic communities are likely to help knowledge diffusion into and out of the UK; more diverse workforces and communities ­ particularly research communities ­ may also accelerate knowledge generation. 14
There is now some suggestive UK evidence for all three channels. Gagliardi (2011) looks at connections between the migrant workforce and firm-level innovation in UK TTWAs, using a shiftshare instrument to identify causal effects. She finds significant positive effects from the share of skilled migrants to firm-level innovation, although the exact transmission mechanisms from arealevel workforce characteristics to firm-level outcomes are not clear. Three other studies look at co-ethnicity and diversity channels, although neither is able to precisely identify skilled migrant effects. Nathan (2011a) looks at minority ethnic inventors in the UK, using a name-classification system to identify ethnicity from patents microdata. Building a panel of inventor activity between 1993 and 2004, and controlling for inventor-level characteristics, he finds that the diversity of inventor communities helps raise the level of individual patenting activity. He also finds suggestive evidence that high-patenting minority ethnic inventors, particularly East Asian 'stars', drive up overall patenting rates. He finds no hard evidence that ethnic inventors crowd out patenting by majority groups. Nathan and Lee (Forthcoming) look at migrant entrepreneurs and top-team diversity in London firms, using a repeat cross-sectional dataset and a series of robustness checks. They find that companies with diverse management are more likely to introduce new product innovations than those that are not. Top team diversity also influences sales orientation, and is particularly important for reaching international markets and serving London's cosmopolitan population. Nathan (2013) extends the analysis across England and Wales, finding positive links between top team diversity and process innovation. Other productivity studies A number of international empirical studies directly test links between migration and productivity at firm, city and country-level, without identifying specific channels. These studies typically suggest externalities from high-skilled migrants to firm-level productivity, especially in skill-intensive environments. For example, Paserman (2008) looks at Israeli manufacturing firms in the 1990s, a period of high immigration from the former Soviet Union. He finds negative associations between immigrant share and productivity in low-tech sectors, but positive links for high-technology industries suggestive of production complementarities. For New Zealand, Marй (2011) finds positive links between local area migrant share and productivity in firms, but does not establish a causal relationship. Parotta et al (2010) and Trax et al (2012) both identify causal effects, using instruments and GMM estimation respectively. The former find that ethnic diversity helps raise TFP in Danish firms operating in trade-intensive sectors, suggesting that diaspora externalities may explain the link. The latter find strong spillover effects from workforce diversity (measured by nationality) to firm-level productivity. They also find spillovers from diverse firms to other firms in the area, raising area-level productivity. At the area level, Ottaviano and Peri (2006) and Peri (2012) look at links between migration and productivity for US cities and states. Using an area-level panel with a shift-share IV, Ottaviano and Peri find that skilled migrants help raise urban-level productivity. Peri finds a strong positive association between immigration and state-level TFP, and explains one third to one half of this link 15
through increased task specialisation by native workers.4 Working at cross-country level, Ortega and Peri (2012) use a panel of 147 countries to show that openness to immigration increases long-run income per head, with the main effect operating through a rise in receiving country TFP. Implications and evidence for the UK These studies provide further evidence for the productivity-enhancing effects of skilled migration, and add to the likelihood that these effects are operating in the UK. However, they are limited to the extent that they do not identify specific channels of impact. They also say little about subsequent effects on employment: although if productivity gains allow firms to expand outputs, this should also raise firms' headcounts. Parallel UK evidence emphasises the importance of migrant human capital. Nathan (2011b) finds weak positive links between skilled migration and urban-level productivity, as proxied by wage changes in a panel of TTWAs between 1994 and 2008. Migration is instrumented with a shift-share. Kangasniemi et al (2012) compare labour productivity growth in Spain and the UK, using growth accounting techniques and a production function estimated via GMM. Growth accounting results suggest that migration has made a negative contribution to labour productivity in Spain and a 'negligible' contribution in the UK, with the difference explained by the UK's higher share of skilled migrants. Production function estimates suggest a positive long-term effect of migrants on TFP in the UK and a negative effect in Spain, explained by human capital differences and more successful assimilation policies in the UK. Consumption side studies International evidence tends to focus on migrant communities as a whole (rather than skilled migrants), with a particular interest in prices (especially housing). For instance, Cortes (2008) and Baghdadi and Jensen (2010) use instruments to explore the impact of US migration on prices. Cortes finds a 10% increase in the share of low-skilled migrants decreases the price of labour-intensive services by 2%, largely through lowering the cost of labour. Baghdadi and Jensen find similar reductions in prices for non-tradeable services, although the costs of transport and healthcare go up. For the US, Saiz (2007, 2011) and Saiz and Wachter (2011) find that immigration raises rents and housing values in destination cities, with population and rents rising in proportion. Within cities, the most immigrant-dense neighbourhoods have seen relatively slower prices increases, an effect attributed to native exits and increased urban-level segregation. For Spain, Gonzales and Ortega (2009) find that migrant inflows raised house prices by about 52% and is responsible for 37% of the total construction of new housing units between 1998 and 2008. For Switzerland, Degen and Fischer (2009) also find a large short term link, with a 1% migrant inflow associated with a 2.7% increase in the price of a single-family home. By contrast, two studies using Census data find much smaller long term effects. For Canada, Akbari and Aydede (2012) show a small but significant effect of 4 By contrast, sector-level analysis by Quispe-Agnoli and Zavodny (QUISPE-AGNOLI, M. & ZAVODNY, M. 2002. The effect of immigration on output mix, capital, and productivity. Economic Review-Federal Reserve Bank of Atlanta, 87, 17-28.) for US manufacturing, and a cross-country study by Llull (LLULL, J. 2008. The Impact of Immigration on Productivity. CEMFI Working Paper 0802. Madrid: CEMFI.) both find negative links between immigration as a whole and productivity. 16
immigration on house prices between 1996 and 2006; for New Zealand, Stillman and Marй (2008) find no significant connection on prices or rents between 1986 and 2006. The only robust studies we have found on migration and the mix of goods and services are Mazzolari and Neumark (2012), which focuses on California, and Bo and Jacks (2012) for Canada. Mazzolari and Neumark find suggestive evidence of both scale and composition effects: immigration is associated with fewer stand-alone retail stores, but a greater variety of 'ethnic' restaurants. Bo and Jacks find that immigration is linked to 25% of the rise in import variety to Canada between 19882007, and argue this represents a substantial welfare gain to native-born Canadians. Implications and evidence for the UK As discussed, in theory skilled migrants are unlikely to have strong effects on the consumption side of the economy unless a) they make up the majority of migrants and b) their preferences and attitudes are very different from those of natives. The international evidence suggests that very large migration shocks are linked to short term price rises (for example, house prices in Spain), although longer term impacts are much smaller (as supplier respond). UK evidence on migration and prices is inconclusive. Frattini (2008) explores the causal effect of immigration on regional prices, using a shift-share instrument. He finds that migration contributed to reduced price growth in labour-intensive service sectors, but may have increased some grocery prices through demand-side effects. Sб (2011) finds a negative association between immigration and house prices at the Local Authority level between 2003-2010, which she suggests is driven by native outflows, but no links at the regional level. Working with a panel of urban TTWAs, Nathan (2011b) also finds no association between immigration and city house prices between 1994 and 2006. Whitehead et al (2011) focus specifically on skilled (Tier 2) migrants, and is the most directly relevant house prices study for this review. (They are unable to carry out any analysis for migrants as residential addresses were unavailable.) Tier 2 analysis is based on analysis of LFS and other public datasets for areas where Tier 2 migrants are known to cluster. They find that Tier 2 residents mostly live in private rented accommodation, with about 20% of a given cohort eventually becoming owneroccupiers. Tenure mix changes slowly, with owner-occupation rising to 45% after five years. They suggest that 'Tier 2 type' migrants are likely to raise house prices by under 1% over five years. More broadly, we might expect to see skilled migrants shaping the local mix of goods and services, through demand channels but mainly via migrant entrepreneurship and advantages in market knowledge. There is plenty of anecdotal and case study evidence of this in the UK, but we have found no systematic studies. 17
Section 2 Datasets review
2.1 Introduction A number of different datasets were reviewed for the project. The aims of the review are to 1) identify the most useful data sources for exploring economic impacts of Tier 1 entrants, and 2) set out some initial answers to the MAC's questions from a preliminary review of these sources.
The dataset review has three components. First, it includes an analysis of the Labour Force Survey, which contains several key variables that may provide insights on the employment and wider impacts of Tier 1 entrepreneurs. Second, it includes some preliminary analysis of the Financial Analysis Made Easy (Fame) dataset, plus an illustration of how FAME could be used to further analyse the impact of Tier 1 investor and entrepreneur migrants using additional data from UK Border Agency(not available for the current analysis). Third, it provides a list of other datasets that provide information on the racial or ethnic background of the owners which could be used to place the impact of Tier 1 migrants in the broader context of historical migration to the UK. 2.2 Labour Force Survey The Labour Force Survey contains no information on the visa status of respondents. In order, to analyse the potential impact of Tier 1 investor and entrepreneur migrants the analysis is limited to non-EU nationals who are self-employed at the time of the survey. Given the recent nature of the Tier 1 investor and Tier 1 entrepreneur routes, the analysis is conducted using the quarterly Labour Force Survey for the years 2011 and 2012.
Number of employees LFS figures suggest that 13% of non-EU migrants in employment are self-employed, compared to 14% for the working-age population as a whole.5 Table 1 provides further information.
Table 1 ­ Characteristics of self-employed non-EU nationals
Characteristic
All non-EU nationals Non-EU nationals British who arrive since nationals
2008
Share of self-employed with employees*
21%
6%
18%
Average number of employees working for 4.80
N/A
4.98
self-employed **
Average age
40.4
33.3
47.20
Share homeowners
49%
23%
82%
Share renters
41%
70%
12%
Share in social housing
8%
5%
6%
Notes: * Self-employed people who use only other self-employed people in the business they run (e.g.
builders) are coded 0, as well as those with partners, but no employees. ** Applies to respondents who work
with between 1 and 10 other employees. The sample for recent migrants is very small and the estimate is not
reported. Source: Quarters 1 to 4 of the Labour Force Survey for the years 2011 and 2012.
5 For non-EU migrants who are active (employed, self-employed or ILO unemployed) the figure drops to 12%. 18
About 21% of non-EU migrants reporting their status as self-employed, also report having employees. This is higher than for British nationals (18%). For self-employed non-EU nationals who work with between 1 and 10 other employees, an average of 4.8 staff are employed. One way to better capture migrants who are part of the Tier 1 investor and entrepreneur routes is to limit the analysis to those migrants who arrived to the UK during the last five years (i.e. since 2008). While this is useful, it has an important adverse effect on the number of observations available for each measure and, therefore, estimates need to be interpreted with caution. Limiting the analysis to post-2008 non-EU self-employed nationals decreases the share of entrants who employ staff to about 6% of all entrants. Hence, the majority of post-2008 non-EU nationals who identify as selfemployed do not have employees. We also have no evidence from the LFS on whether employees are migrants or UK-born, or whether this employment is net additional. Other demographic and social characteristics Table 1 also reports on other characteristics of self-employed non-EU nationals. They tend to be relatively young (40.4 years of age on average), about half are home owners and less than 10% are in social housing. If the analysis is limited to those who arrive in the UK during the last five years, the share of homeowners decreases to about 23%, while the share in social housing decreases slightly to 5%. For all non-EU nationals in self-employment it is possible to conclude the share of homeownership is higher than that of all foreign nationals in the UK, while the share in social housing is lower. Note that these numbers are qualitatively different from findings on the housing market behaviour of other migrant groups, which are dominated by renting. 2.3 Financial Analysis Made Easy (FAME) FAME is a database that provides financial and descriptive information on companies in the UK and Ireland.6 Published by Bureau van Dijk Electronic Publishing (BvDEP), FAME includes a range of company data such as information on profits and number of employees. FAME also provides information on directors of the companies, which may help to identify both entrepreneurs and investors (who may have taken a management / oversight role in companies they invest in). There are two inherent limitations of FAME for its use in research on high-skilled migrant entrepreneurs and investors. First, there is missing data on nationality of the directors for many companies. Hence, the analysis will be picking up information from just some companies, most likely the largest companies, which limits the extent to which we can observe new firms. Second, companies may have more than one director and could therefore have directors from different nationalities or in different age groups. Full analysis of FAME database using additional UK Border Agency information The best use of the FAME database would be to match UK Border Agency information on individual visa applicants with information on the directors of the companies. The Companies Act 2006 requires a private company in the UK to have at least one director. Public companies are required to have at least two directors. In either case, at least one of the company's directors must be an 6 Further information regarding FAME is available at http://www.bvdep.com/en/fame.html. 19
individual (i.e. not a company or other form of legal entity). By cleaning the UK Border Agencyand FAME data and matching on full names, it would be possible to identify those companies with directors which are in Tier 1 visas and to explore the characteristics of such companies. Among many other variables, it would be possible to explore company characteristics such as number of employees and operating revenue. In a small number of cases, name matching might not be definitive (for example, common English-language names). In these cases, researchers would need to follow up manually with individual entrants/directors to confirm identity. Note that the matching procedure is not feasible given the time/budget constraints of this project, but would be a productive avenue for follow-up research. Preliminary analysis from Fame: nationality of company directors In the absence of full data matching, we provide some general discussion of the characteristics of companies with directors from those nationalities which are more common for Tier 1 entrepreneur and Tier 1 investor migrants. We also separate the directors across nationalities and age groups as done in the MAC Tier 1 visa data analysis. According to the MAC Tier 1 visa data analysis, the top nationalities in terms of applications for Tier 1 applications investor visas (out-of-country) for the period 5 June 2008 to 31 July 2012 were: Russia (276), China (197) and USA (58). The top nationalities in terms of applications for Tier 1 applications entrepreneur visas (out-of-country) for the same period were: USA (222), Pakistan (145) and India (101). The MAC analysis of Tier 1 visa data further divides these applications by age groups. The first group includes those who are less than 25 years of age. Subsequent groups are set at five year intervals up to 65 years of age. The last category includes those 65 years of age and over. We use these same age categories to explore the FAME data. In the UK the minimum age for a director is 16 years of age and there is no maximum age. Table 2 reports information from FAME for companies which report having directors from the top 3 nationalities for each Tier 1 category mentioned above (USA is repeated in both visa categories). The information in Table 1 is also split across the same age categories used by the MAC. The first column reports on the nationality of the director, the second column reports on the age of the director, the third column lists the number of companies with at least one director from a given nationality in a specific age group, the fourth column reports the average number of employees for companies with at least one director from a given nationality and in an specific age group and finally column 5 reports the average operating revenue (i.e. turnover) for companies with at least one director from a given nationality and in an specific age group. As explained above, there is missing data for many companies across all categories (i.e. age and nationality of directors, revenues and number of employees of the company). Those companies with complete information tend to be the largest companies. Therefore, while the information in Table 1 is useful it must be interpreted with caution. Table 1 shows that the USA and India are the leading source nations for company directors in FAME. There are 42,747 companies which reported having at least one director who is a USA national and 33,201 companies which reported having at least one Indian national as director. A relatively small number of companies reported having a Russian national as a director (4,416). 20
Table 1 also gives employment figures for these firms. Companies who have Chinese or Indian nationals as directors tend to be larger than average (1,341 and 1,165 employees respectively, versus 988 for the whole sample), while those with a Pakistani, Russian or US director tend to be smaller than average in employment terms (respectively, 191, 884 and 966 employees on average).
Table 2 ­ Characteristics of directors and characteristics of the companies
Nationality Age
Number of Average number Average operating revenue
companies of employees
(turnover) Ј ,000's
(1)
(2)
(3)
(4)
(5)
Russia
All
4,416
884
185,039
Russia
Under 25
156
N/A
53
Russia
25-29
533
36
166,031
Russia
30-34
840
737
70,498
Russia
35-39
738
437
46,802
Russia
40-44
908
1,919
584,862
Russia
45-49
602
3,258
191,220
Russia
50-54
463
3,303
249,026
Russia
55-59
313
706
128,722
Russia
60-64
174
104
19,083
Russia
65 and over 126
11
97,089
China
All
20,940
1,341
246,509
China
Under 25
862
138
17,537
China
25-29
3,664
848
44,684
China
30-34
5,544
701
76,178
China
35-39
3,993
90
136,303
China
40-44
3,461
357
236,836
China
45-49
2,245
179
192,132
China
50-54
1,213
840
259,091
China
55-59
888
218
220,747
China
60-64
494
7,646
1,473,928
China
65 and over 474
8,740
1,281,351
USA
All
42,747
966
230,695
USA
Under 25
180
16
373
USA
25-29
764
64
6,283
USA
30-34
1,980
164
21,186
USA
35-39
3,351
519
78,140
USA
40-44
6,505
697
97,948
USA
45-49
9,392
418
104,877
USA
50-54
10,338
813
201,072
USA
55-59
9,070
993
424,778
USA
60-64
6,445
1,718
352,305
USA
65 and over 7,699
1,868
475,054
Pakistan All
15,673
191
9,026
Pakistan Under 25
746
289
5,168
Pakistan 25-29
3,589
32
370
21
Pakistan 30-34
5,341
26
1,019
Pakistan 35-39
3,271
10
2,307
Pakistan 40-44
1,604
155
24,525
Pakistan 45-49
891
31
2,055
Pakistan 50-54
564
32
5,502
Pakistan 55-59
408
31
2,970
Pakistan 60-64
229
875
71,608
Pakistan 65 and over 244
215
17,463
India
All
33,201
1,165
144,034
India
Under 25
1,008
28
1,229
India
25-29
6,329
196
5,501
India
30-34
10,437
90
4,329
India
35-39
7,217
88
8,595
India
40-44
3,999
563
122,276
India
45-49
2,569
308
55,417
India
50-54
2,004
1,192
175,608
India
55-59
1,668
2,230
360,175
India
60-64
1,117
1,554
340,789
India
65 and over 1,254
3,266
502,218
Source: FAME. Notes: Retrieved on 15 February 2013. The information is for the last year available. The "All"
category includes those with missing data for age of the director. There is missing information on all variables
(i.e. age and nationality of directors, number of employees and turnover of the company) for a substantial
number of companies. Values need to be interpreted with caution.
The MAC Tier 1 visa data analysis suggests that the most popular age category for Tier 1 investors is the 40-44 years of age category, while the most popular age category for the Tier 1 entrepreneurs was the 35-40 years of age category.
Table 3 ­ Aggregate statistics for companies with directors, five selected nationalities / age ranges
Age
Number of Average number of Average operating Total number Total operating
Group
companies employees
revenue (Ј ,000's) of employees revenue (Ј ,000's)
All
116,157 988
212,299
10,040,392 3,326,299,236
Under 25 2,952
74
3,702
890
148,096
25-29
14,879
211
22,553
19,234
7,104,227
30-34
24,142
228
20,072
77,600
18,425,888
35-39
18,570
390
56,227
288,329
78,548,596
40-44
16,477
702
124,355
1,302,178
320,462,032
45-49
15,699
435
103,786
1,217,898
386,915,333
50-54
14,582
866
199,918
2,723,331
829,259,300
55-59
12,347
1,053
406,931
2,911,366
1,534,537,040
60-64
8,459
1,848
379,307
3,276,509
994,921,495
65
9,797
2,138
489,720
3,555,384
1,385,908,395
Source: FAME. Notes: Retrieved on 15 February 2013. The information is for the last year available which in
most cases is 2011. The "All" category includes those with missing data for age of the director. There is missing
22
information on all variables (i.e. age and nationality of directors, number of employees and turnover of the company) for a substantial number of companies. Values need to be interpreted with caution. Table 3 gives employment and revenue figures for these directors' firms. The numbers suggest that companies with directors in the 35-40 years of age category have on average 390 employees while companies with directors in the 40-44 years of age category have on average 702 employees. Both groups' firms are smaller than the average (988 employees), and have a lower-than-average operating revenue (Ј56.3m and Ј124.4m respectively, versus an average of Ј212.3m). Again, given the limited information available in the MAC Tier 1 visa data analysis it is not possible to separate those directors who hold a Tier 1 visa from other directors. A matching analysis, such as the one explained above would address this problem. 2.4 Other datasets with information on the racial or ethnic background of the owners Five additional datasets were reviewed for the project. These datasets provide information on the racial or ethnic background of the owners. Ethnicity/racial background provide no information on migration status. Therefore, the information provided by these datasets for the analysis of Tier 1 entrepreneur and investor visas is very limited. SME Finance Monitor survey (SMEFM) The SMEFM has been commissioned by the Business Finance Taskforce to report into the small- and medium-sized enterprise (SME) finance. The survey began in 2011 and is taken each quarter with about 5,000 interviews of different SMEs. The SMEFM is undertaken by BDRC consultancy. The survey is available for download from the UK Data Archive at www.esds.ac.uk (SN 6888). In the fifth wave of the survey, based on quarter 2 of 2012, there was information collected on the ethnic background of the owner (if relevant the survey collects information on the background of the partners, majority of the partners or principal owner). One potential use of the survey is to estimate the number of employees and other company characteristics by ethnicity of the owner. However, this would be a limited analysis for two reasons. First, ethnicity provides no information on migration status. Second, the survey is limited to businesses with 250 employees or less. Therefore, it is likely that variation across businesses is very limited. There is also a short analysis of the SMEFM in the second section of the data review. United Kingdom Survey of Small and Medium Sized Enterprises' Finances (UKSMEF) The UKSMEF is the first comprehensive survey of SMEs finances and financial relationships in the UK. There are three "rounds" of this survey. The first (2004) and third (2008) rounds were conducted by the Warwick Business School and allow for direct comparison. The second round (2007) conducted by the Centre for Business Research based at Cambridge use a different questionnaire which limits comparison with the other two rounds. The 2007 round is described as a "separate cross-sectional survey". The UKSMEF data and survey instrument are available for download from the UK Data Archive at www.esds.ac.uk (2004 = SN 5326, 2007 = SN 6049, 2008 = SN 6314). 23
There is no information on country of birth or migration status of the owner in UKSMEF. One of the questions in the survey is about "racial background" of the owner (if relevant the survey collects information on the "racial background" of the partners, majority of the partners or principal owner). The UKSMEF has the same limitations as the SMEFM with the additional disadvantage that the data is relatively old and may not be particularly informative about Tier 1 migrants. Ethnic Minority Business Finance Survey (EMBFS) The EMBFS is a follow up booster survey to UKSMEF, which uses the same methodology and survey instrument as the original (i.e. 2004) survey but focused on Ethnic Minority Business (EMB). An EMB is defined as a business in which the owner or the majority of partners or shareholders in the business are from a particular (non-White) ethnic minority group (e.g. Indian, Pakistani, Bangladeshi, Black Caribbean and Black African). This survey could provide additional information on business owners from Indian and Pakistani background, two groups that are among the main users of Tier 1 investor and Tier 1 entrepreneur visas according to the MAC analysis of Tier 1 visa data. However, the data from the EMBFS is relatively old to provide much insight on Tier 1 migrants. Small Business Survey (SBS) The SBS was commissioned by the Department for Business, Innovation and Skills (BIS) as a 2010 follow up to the Annual Survey of Small Businesses 2007/8. The data and survey instrument are available for download from the UK Data Archive at www.esds.ac.uk (SN 6856). Access to these data is through the Secure Data Service. Access requires accreditation by the UK Statistics Authority as an Approved Researcher and completion of face-to-face training. This survey could also be used to do a comparison of company characteristics based on ethnicity. Again, this would be a limited analysis and provide no information on nationality or migration status. Workplace Employment Relations Survey (WERS) WERS is a 2004 survey of workplaces and their employees. It follows earlier surveys conducted in 1980, 1984, 1990 and 1998 (originally known as the Workplace Industrial Relations Survey). The survey collects information from: managers with responsibility for employment relations or personnel matters; trade union or employee representatives; and employees themselves. The survey includes a 1998-2004 panel component. The data and survey instrument are available for download from the UK Data Archive at www.esds.ac.uk (SN 5294). The survey collects no information on migration status of the respondent or the employees of the company. There are two questions about ethnicity, one about the respondent and the other one about the employees of the company in general. The questions in the WERS could be used to explore the interactions between employees in companies with different ethnic workforce compositions. However, this question is not as relevant for the evaluation of the Tier 1 investor and Tier 1 entrepreneur routes. Another limitation is that the data are relatively old. The fieldwork for the next WERS (WERS6) was completed in June 2012 and the data should be released in the near future. 24
Section 3 Tier 1 entrepreneur and investor migrants: evidence from case study research 3.1 Introduction The research included qualitative, case study, interviews with Tier 1 migrant entrepreneurs and investors. The purpose of the case study research was to inform and explain findings from quantitative, survey and administrative data and to shed light on findings from existing research. Beyond this, the case studies were also intended to gather new evidence about the decisions made by entrepreneurs and investors, particularly in relation to the decision to come to the UK and business decisions. Further, they were intended to provide further insights into the impact of migrant entrepreneurs and investors and how their activities and experiences are affected by current economic, political and social circumstances. A number of issues discussed in the evidence review were not covered in the qualitative research. In relation to entrepreneurs, these include the roles of disaporas and co-ethnic communities in enabling entrepreneurs to set up and develop businesses; in relation to investors they include the role of investors in advising other investors and the firms in which they have a financial stake. These limitations arose largely from the relatively early stage which many respondents had reached in terms of developing their businesses and their investments. In turn, individuals' lack of progress is explained in part by the UK's currently-depressed economic climate, delays in entering the UK and hurdles encountered once in the country. The qualitative research was also not able to identify variations in practices and experiences according to country of origin, for the same reasons and because of the relatively small sample size. We interviewed 20 Tier 1 migrant entrepreneurs and investors. These included seven investors and 13 entrepreneurs. Four were women (three entrepreneurs and one investor) while the rest were men. We also interviewed two graduate Tier 1 entrepreneurs and a holder of the former Tier 1 visa. They provided additional information about enterprise activity and development in the UK but were not included in the sample. Case study interviews were carried out by telephone using a semistructured topic guide (see Appendix 2) and were recorded, with the permission of respondents. All interviews were carried out during April 2013. Tier 1 visa applicants were invited to take part in the research through an email to addresses provided by the MAC. This resulted in a high level of interest, with nearly 80 individuals willing to be interviewed. Therefore, to benefit from the opportunity to extend participation in the research, we asked interested individuals who could not be interviewed to email us about their experiences of applying for and having a Tier 1 visa via email. A total of 26 people sent us their responses in this way. Their experiences were treated as additional data, adding strength to some of the key messages identified from the analysis of case study interviews. We analysed the case study data using a qualitative 'framework' approach, in which some themes were mapped in advance, and others identified from participants' accounts. In presenting the data in the report, some minor details of the circumstances of some respondents, eg profession or location, have been changed where these might identify individuals. 25
3.2 Background: personal and professional Of the case study individuals, 13 were entrepreneurs and seven were investors, 16 were men and four were women (three entrepreneurs and one investor). Most had been granted the visa relatively recently. Only one of the entrepreneur interviewees had been refused a Tier 1 visa. Respondents originated from a wide range of countries, including the USA, Australia, Canada, New Zealand, South Africa, Egypt, Russia, South America and China and India. However, many did not apply from their country of origin because they had previously migrated at some stage and, in some cases, several times. In terms of age, two (both entrepreneurs) were in their twenties, six were in their thirties, (five of them entrepreneurs) five in their forties and seven were 50 or older. The investors were generally older than the entrepreneurs, with five out of the eight aged over 50. Most were highly educated, with many having masters degrees. Overall, this high human capital, globally mobile, group fits with the findings from the wider literature (see Section 1). As noted below, a few interviewees are not currently living in the UK either, in part due to the international nature of their activities. Many of the case study sample had obtained a Tier 1 visa fairly recently: ten had acquired a visa in 2012 and one in 2013. Investors had generally been in possession of a Tier 1 visa for longer, with four dating back more than three years. A few entrepreneurs were starting out in business for the first time. However, many had extensive business experience, having already set up successful businesses, in some cases multiple successful businesses and investments. A number had a net worth amounting to many Ј millions. Most Tier 1 migrants, both entrepreneurs and investors, had moved to the UK with their families. Entrepreneurs were engaged in a wide range of business sectors including IT, (websites, apps and software, publishing) business consultancy, manufacturing, hotels and spas, restaurants, drinks industry and retail. Many businesses had a strong IT-based element. Most respondents had already established successful businesses in these sectors in their country of origin or elsewhere. Investors were generally business people who had achieved success in particular sectors, for example mining, finance and IT. They were generally still involved in their businesses, to a greater or lesser degree of activity, although some were largely living off their investments. The interview data suggests that, in practice, the distinction between investors and entrepreneurs is not clear cut. A number of investors were interested in entrepreneurial activity in the UK but were waiting to see how the economy fares over the coming months and years. They did not wish to be constrained by the terms of the Tier 1 entrepreneur visa, which would require them to set up a business, begin trading and recruit staff in a relatively short period of time (see later). They had made their initial investments for their visa application in Government bonds. Reasons for this were principally that this investment clearly meets the terms of the Tier 1 visa. Most had either made further investments in the UK, largely in securities listed on London Stock Exchange again to meet visa requirements. Many were planning further investments once they had gained a better feel for UK markets. 26
Living arrangements Of those who had settled in the UK, many were living in London, although they were widely dispersed, with some living in areas including South West England and Scotland. Many were currently renting a residential property but were planning to buy, or had bought a property and were renovating while renting. Some were holding back on buying a property because of they found prices too high or because of uncertainties in the housing market and, in a few cases, uncertainty around the profitability of their business in the UK. For example one young entrepreneur thought the market for his yachting product might be stronger in the US, and that he might re-locate there if the business takes off. Therefore, for the time-being, he was continuing to rent a flat. Some had children who were settled in to schools, or were at University, in the UK. These were mainly entrepreneurs, with the investors being older and less likely to have dependent children. A few respondents were not living in the UK at the time of interview, for variety of reasons: they were involved in other business activities, as entrepreneurs or investors outside of the UK and therefore came and went; their business had not been successful and they had returned to their country of origin to focus on other business activities. 3.3 Reasons for applying for a Tier 1 visa As we noted earlier, most respondents had applied for a Tier 1 visa relatively recently, particularly the entrepreneurs who had held their visas for no more than two years. The advantage of this for the research was that they had good recall of their reasons for applying and of the application process. Entrepreneurs had applied because they wished to set up a business in the UK. This either consisted of starting a new business altogether or developing a business which they had already operated in their country of origin or elsewhere. Most respondents were not first-time entrepreneurs but had achieved considerable success in their businesses and with their investments. While the terms of the Tier 1 visa make a distinction between entrepreneurs and investors, and apply different conditions, some respondents saw themselves as both entrepreneurs and investors, in terms of their plans for activity within the UK. These individuals came through the investor route because they had the necessary finances, and because they wanted time to identify business opportunities and to become established. They chose not to come via the entrepreneur visa because they saw it as overly prescriptive in its requirements for a business to be established and trading within six months, and to have recruited staff within two years. They felt that, particularly in the current climate, it might not be wise to act so quickly. This suggests that the current requirements attached to the Tier 1 visa may be deterring potential entrepreneurial activity. Most respondents had come to the UK either as sole traders or with one business partner, who was sometimes their spouse. One of the case study interviewees had not come to the UK as an individual entrepreneur but had been approached by a recruitment company, working on behalf of an investor who wanted to set up a software company in the UK (T11). 27
Most respondents said they knew little about the visa options before looking into the options. Therefore it was typical for an individual to have the idea of moving the UK as an entrepreneur or investor first and then look into the visa options. The internet, and the UK Border Agency website in particular, was the main source of information. The UK Border Agency website was generally felt to explain the terms of the visa very clearly. When looking into visa possibilities, some respondents had expected to find a Highly Skilled Migrant Programme and were surprised that the previous Tier 1 had been discontinued. One entrepreneur in his early twenties had obtained a Tier 5 youth mobility visa, but had found it too restrictive in its limits on capital outlay and had not started trading. Many respondents saw the Tier 1 entrepreneur visa as a good option for them (with some caveats, explained below). A few respondents, who frequently travel to and from the UK, were concerned about their current arrangements. These included an artist living alternatively in the UK and Australia and an investor who had obtained a diplomatic passport from a country where he had strong business links. They felt that the Tier 1 visa would make it easier to travel to and from the UK. Why the UK? One of the key attractions of the UK to entrepreneurs was the location of the UK within European markets, language and time zone. Many entrepreneurs, and investors engaged in business activities, viewed the UK as an ideal base from which to tap into European markets either in general, or segments such as Northern European countries. This was particularly attractive to entrepreneurs from countries where English is the first or second main language, for example the US, Australia, Canada and India. As one case study entrepreneur from New Zealand explained: 'We knew that Europe was really accessible. We can launch into France, Germany, Spain from here, which we can really do and the fact that it's only a one hour different timeframe means you've got a whole set of other markets right on the doorstep here' (T22). This respondent had been able to raise capital from other European countries and Japan since setting up business in the UK. Other entrepreneurs commented on the ease at which they could travel between the UK and other European destinations for business. The UK's location in relation to other key business and trading centres was also a factor, with entrepreneurs and investors with connections with the Middle East and the US also referring to the UK's location between the two as a factor in their decision-making. A number of respondents said they had a wide choice of locations from which they could conduct their business. These were principally IT based companies. Therefore, they chose the UK for a range of business and personal reasons. Business reasons included the availability of business support and supply of potential highly skilled recruits. They also included the strong technological infrastructure of the UK, including access to and take up of broadband. Some entrepreneurs had accessed advice specifically on business opportunities in the UK before applying, largely through business contacts or consultants. For one entrepreneur, a business consultant the advice of UKTI in New York had been pivotal in the decision to set up in the UK: 28
`We were looking at starting a company either in New York or in London, but we're very interested in the European (IT) design scene. A fellow entrepreneur told me about the activities of UKTI in New York. I met with them and they were very helpful. After having discussions and understanding what the implications are, we did decide to choose London over New York'. (T21) A number of the case study migrants had lived in the UK previously, most often as employees or masters students, and others had visited on several occasions. Those who had studied as masters students seemed to have some advantage in setting up businesses, in their knowledge of markets, opportunities and contacts from their courses. In some cases, the attachment to the UK was expressed in emotional terms, and particularly the area in which they had decided to settle, which as we described earlier, included south east and south west England and Scotland, as well as London. For investors, reasons for applying for a Tier 1 visa were more personal. For many, the main motivation was to live in the UK. In some cases this was because of long-standing connections with the country, which meant they were frequent visitors. Some entrepreneurs also chose the UK partly for personal reasons, particularly those with young children. A number of respondents commented on the quality of the education system in the UK and access to good schools. The investors generally saw themselves as having a wide range of options from which to choose, which typically included the US, Canada and Australia. One case study investor from Russia described his family's decision: 'We were thinking about the future of our children and we knew the UK very well because we used to live here [as employees in investment banking]. We decided to go here for children actually, for education and such, because it doesn't matter for us, from where to work, because we are investing around the world. This Tier 1 visa was perfect for us'. (T14) Another investor had decided between living in the UK and Singapore, and had chosen the UK despite the financial advantages of Singapore: `In Singapore you've got the climate, you've got very simple entry there and you can get in there and start doing stuff really quickly and income that you earn outside of Singapore can be kept outside and not taxed there, which you don't have that option here in the UK' (T8). He had also considered Australia on the grounds that `they don't have austerity' but had settled on the UK because of `quality of life and institutions'. A small number of investors, and entrepreneurs had little previous contact with the UK but wanted to make it their home. Factors making the UK attractive included its culture and lifestyle, the people, diversity and acceptance, the arts and, perhaps surprisingly, the weather. One entrepreneur from New Zealand expressed the importance of cultural factors: 29
`We're a mixed race family and [London] is a fantastic place to live for that. We don't experience any racism, we've been totally welcomed..... and we don't know that would have been true everywhere in the US' (T22). Political stability, the legal system, rule of law, cosmopolitanism and tolerance were also factors for some migrants from Egypt, Russia, China, Pakistan and the Middle East. Not living in the UK or meeting visa terms As we explained earlier, a few respondents, largely those who emailed their responses were not living in the UK at the time of interview. Reasons for this included having been refused a Tier 1 visa (see below), lack of success with the business; or not being willing to meet the terms of the visa or not taking it up. Reasons why visa applications had not been successful appeared to be predominantly financial, for example bank statements which were not satisfactory to the UK Border Agency. Some visa holders had left the UK because their new ventures had not been successful and they wanted to focus on their other businesses. Reasons for not having taken up the visa were highly individual: in one case, the entrepreneur had been given wrong advice about the potential market for their product in the UK which prevented it from getting off the ground; in another case, the applicant's partner had a serious medical condition and plans were on-hold until his condition stabilised; while another respondent had not taken up his visa because, shortly after obtaining it, his office and house in New Zealand were badly damaged in an earthquake. If the degree of fall-out in the take-up of Tier 1 visas occurs more widely, it suggests that UK Border Agency records of visa holders are likely to over-estimate the number of active Tier 1 entrepreneurs in the UK. A small number of respondents said they were not meeting the terms of their visa. Several respondents, including two via email, said that before obtaining the visa, they had not realised that its terms include a residency requirement of 180 days a year. There was a perception that the rules on residency had changed, although they were not sure of this. Another respondent who had obtained a Tier 1 investor visa said he had not been able to open a bank account in the UK. Another, an artist who applied for the visa to prevent entry problems on his numerous trips between London and Australia, said he will not be able to recruit any employees within the required time (see later). 3.4 The process of applying for entry via Tier 1 In most cases, the process of application had been quick. Some said it had taken several weeks, while others several days, possibly reflecting the type of service they opted for. Some respondents had made the application themselves, while others had used the services of a law firm or an immigration consultant. This was seen as costly, amounting to several thousands of pounds. A number had consulted a lawyer for some initial advice and then made the application themselves. Those who applied themselves generally found it straightforward, and largely a matter of having the right documents to submit with the application. Most applicants felt the UK Border Agency site was written in plain English and was easy to follow, however the sample may be biased in this respect since most respondents were successful applicants. One interviewee had applied for a Tier 1 entrepreneur visa and had been refused, although would not say why. He believed that had the application included an interview, and the opportunity to 30
explain his business plans, the visa would have been granted (T4). Three individuals responding by email had been refused a visa, with proof of funds being the apparent reason. A number of case study individuals had initially had their applications refused because they had not submitted sufficient information or the full set of documents required for their application. Missing information was often financial, including bank statements and letters from the applicant's bank. In some cases the fault appeared to lie with the respondent's bank, which had failed to provide current statements. Other requests for documentation included documentation for spouses and children, including marriage certificates and custody agreements. Where difficulties were experienced, these were often with visas for dependents. In one case, UK Border Agency made a mistake with a spouse's visa, which, while being resolved, involved having to suspend use of her passport for several weeks (T21). One investor had wanted to migrate with his family, including his 19 year-old son who he felt should count as a dependent because he was supporting him financially. After looking into the options, his son enrolled in university access course and he entered the UK on a student visa (T19). Respondents also complained at the cost of the visa, at more than Ј800 and particularly that the cost of the visa for dependents is the same. Rejections proved costly for some applicants, since reapplications involved having to repeat bio-metric scans, sometimes involving long journeys within their country of application, and loss of interest where the Ј200,000 entrepreneurial funding had to sit in an account in readiness for transfer to the UK. Some respondents were in the UK at the time they were applying, yet were required to submit their applications from their country of residence. This was an inconvenience for some, who would have like to apply from within the UK. Experiences of using consultants and lawyers were mixed. Some were happy to have handed over the process to a legal expert for the reassurance this gave them that their application would not be rejected over minor technicalities. However, some respondents felt that their lawyer lacked expertise and said they had made mistakes in the application. It was unclear in some cases whether the difficulties experienced by respondents were with their adviser or with lack of clear guidance from the UK Border Agency. Some individuals had spent considerable sums on legal advice, both during and after their application. One respondent whose questions included whether his company could pay him a salary to meet his living expenses, had paid more than Ј5,000 in legal fees which he felt was excessive to obtain an answer to a relatively simple question (T6). Some respondents had held a UK visa previously, for example a Working Holiday visa, or the Tier 1 Highly Skilled Migrant Programme (HSMP), which has expired. Some of these made comparisons between their experiences of applying for a Tier 1 entrepreneur visa and HSMP, commenting that their previous applications had been more simple and straightforward. Meeting the criteria for Tier 1 entry Respondents generally said they found it easy to meet the requirements for the Tier 1 visa, but our sample is clearly biased towards individuals in this position, since all but one of those interviewed had successfully applied. Those who emailed us about their experiences included some unsuccessful applicants. However, while the reasons for rejection sometimes included proof of funds, they were not sufficiently clear for us to draw conclusions on why conditions are not met. 31
Most entrepreneurs had not experienced difficulty meeting the requirement to register their business within six months, since they were almost all very clear about their intentions. Most were able to meet the financial requirements for Tier 1, of Ј200,000, generally because they already had successful businesses outside of the UK. However, a small number had experienced some difficulty. They included the following examples: · A software engineer, who had been recruited by a head-hunter with backing from an investor who then pulled out. The visa process ground to halt until a new investor was found (T11). · A young entrepreneur from Australia, who had only been able to raise the necessary funds through a wealthy school friend, but in fact did not need the level of investment required to get the business off the ground (T18). He therefore felt that the requirement was too high. · An American entrepreneur setting up a tourist guide business, who had raised the funds through a combination of her own savings and loans from her parents and Grandmother. She also did not need this level of investment to get her business of the ground (E25). · An American entrepreneur in his forties who raised the funds through selling his house. His new business in the UK had taken off very quickly and he was planning to buy a property in the UK (T20). Investors generally found little difficulty raising the minimum level of investment, Ј1million, and did so from a range of sources, usually their own business, and in one case a spouse's. However, some respondents, both entrepreneurs and investors, experienced difficulty in transferring money into the UK. Investors felt that the classes of investment required in order to meet the Tier 1 visa requirements are clearly laid out and did not see them as problematic. A few respondents said they had been affected by restrictions on their right to work as an employee while holding a Tier 1 visa. These included a young entrepreneur, new to the UK, who would have like to have taken a part-time job to meet people and to help with his living costs. An investor also said she had been restricted from working during her first two years in the UK and had a `very sad and miserable experience' (T1). Meeting the terms of renewal Few respondents had reached the renewal stage. However, one investor who had done so had found the process quite unsatisfactory. This was principally because he was asked to part with his passport for six weeks, which would have affected his travel plans. After consulting with a lawyer, he paid around Ј7,500 for his application to be fast-tracked and received the renewed visa the same day. Similarly, an entrepreneur responding by email had his business disrupted by having no passport for five months during renewal. He explained that: `I have a consulting business, catering to other European countries, Asia and the USA for client presentations for marketing and consulting, with no travel it has been extremely difficult to provide uninterrupted service to our customers' (E17). Other respondents were concerned that this would happen to them; that during the renewal process, they would not be able to travel and that this could affect their business plans (eg T21). 32
Some respondents expressed concern at whether they would be seen to have met the terms of the visa for it to be extended, and to be given Indefinite Leave to Remain in due course. Many of these concerns were centered on the requirement for businesses to have reached particular milestones, including having recruited at least two members of staff. This included an entrepreneur in his early twenties who had raised the Ј200,000 from a former school friend for a business in the yachting sector. He was outsourcing manufacturing of his products and, although he would like to employ administration and accounting staff, this was dependent on business income and he was not certain that he could afford to recruit these within the required period of time (T18). Another young entrepreneur had taken 18 months to get his business off the ground and was concerned that he had only six months in which to hire staff (T16). Some interesting insights were gained from investors who had considered entering the UK via the entrepreneur route, but had decided not to. This was principally because they wanted to investigate opportunities in the UK first, and felt that this might take some time. Therefore, the requirement to have reached a certain level of business activity within a specified period was seen as too restrictive. A number emphasised that this would take time, as one explained: `There's a lead time, and you're not going to put up your hard earned capital unless you actually understand the business, and trying to get that understanding just takes time..... If I was under the clock because I'd come in under the entrepreneur one I would have really been panicking now. Well, I wouldn't have been able to stay because I wouldn't have committed the cash' (T8). Therefore, a number of Tier 1 visa holders had come to the UK through the investor route, when they would more accurately be described as entrepreneurs. Another anomaly was apparent from the case of an artist, who had taken the Tier 1 entrepreneur route principally to make it easier to come and go between the UK and Australia, having experienced lengthy questioning at the UK border on a number of occasions. He was certain his visa will not be renewed because he was not generating an income, and felt his only option was to marry his British partner (T13). The investor route would have been more appropriate for this individual, although this would clearly be dependent on his ability to access funds. The chief concern of investors in meeting the visa requirements concerned the residency requirement. This was a particular concern of investors with business commitments outside of the UK. One respondent, who had not applied until the residency requirement was reduced from nine months to six, described the longer requirement as a `golden cage' which would adversely affect his overseas business activities (T10). Concerns were expressed not just around meeting the current terms of their visa, but whether these terms might be altered as a result of changes in UK immigration policy. Finally, it seemed that some concerns about renewal were non-specific but arose from general anxiety that they would be forced to abandon their plans. A 26 year-old entrepreneur articulated such concerns: `I am thinking about after three years I will have my family, I will have my life here, I will have my home and I will have friends. I will have good stuff and I can't imagine if the Border 33
Agency say "Oh sorry, you missed to do this stuff" or "It is not complete". So that's me, I go back to Egypt' (T6). Another entrepreneur said he was expecting a `really bad experience' of renewal because of unsatisfactory interactions with UK Border Agency over his original visa (T21). These types of fears meant that a number of respondents were concerned to take the greatest possible care to ensure they were meeting the terms of their visa. Settling into life in the UK Aspects of settling into life in the UK were discussed with respondents. Issues raised included finding schools and finding somewhere to live. Most reported very positive experiences. For a number, the UK had already felt like a second home since they had either lived here in the past or made frequent visits. Some had become involved in their local communities, for example through involvement with their Parish council and children's schools. One entrepreneur, who had previously worked in the UK as a highly skilled migrant, described his family's experience as: `Fantastic - we are settled here, we have made friends very quickly. My daughter is going to a private school in Edinburgh and my son is going to nursery when he turns three, so it's been fantastic, very easy, it's been great' (T20). One investor had become involved in a leading policy institute. 3.5 Establishing economic activity in the UK Setting up the business As we noted in Section 1, there is a gap in knowledge about the factors which support and encourage the development of migrant businesses in the UK, including access to finance, and how these compare with experiences elsewhere. The case study research aimed to improve understanding of such issues, by investigating the experiences of entrepreneurs in setting up their businesses, the factors that facilitated this process and the barriers they encountered. Most of the entrepreneurs were at a relatively early stage of setting up their business. In terms of their experiences of setting up their business, they divided these into the process of business registration and early operation, and financial aspects, particularly banking. The first of these processes was reported as quite straightforward, the second as problematic. In terms of business set up, the processes involved included registering with HM Revenue and Customs, registering for VAT, for a National Insurance Number and registering the business. Where difficulties were experienced, this seemed to arise from language skills. However, many respondents were surprised at the length of time which some of these processes took, for example obtaining a National Insurance number. A number of respondents said that setting up their business had been relatively easy because of their previous business experiences gained overseas which had equipped them with knowledge of the sector in which they were setting up in the UK. One entrepreneur who was establishing a health spa had encountered difficulties with his local planning authority over his application of change of use (T6). Some respondents had encountered delays because of industry regulations that had to be 34
met. These included an investor in the boat business where various types of certification are required. While he regarded these as appropriate, they were numerous, took time and effort to research and to obtain (T8). One entrepreneur said he would advise prospective applicants for a Tier 1 visa to spend time researching regulations, since they are both easily accessed and clearly described (T15). Some respondents had found business premises and, although property prices were found to be high, had found accommodation to suit their business needs. One entrepreneur had obtained several offices dotted over London to locate aspects of her burgeoning internet based business. A number of entrepreneurs setting up in London had made contact with London and Partners, a notfor-profit public/private partnership which promotes enterprise in London. The help they had received included access to reasonably priced shared business space. Banks The most serious difficulties encountered by respondents in setting up their businesses involved banks. A number of respondents encountered difficulty opening a bank account. This had caused them considerable problems, both in term of their business and personally. The application process was found to be long and drawn out and, in some cases, led to refusal on the grounds of lack of UK credit history or a stable residence in the UK. Some respondents had been able to set up an account with the UK branch of their bank in their country of origin, but in some cases even this had not been possible. One entrepreneur remarked that it is as well that Tier 1 applications have to be made from outside of the UK since, if applicants were required to have set up a UK bank account, few could apply. This individual had not set up a UK account, explaining that: `At the moment, we just run it from offshore, because we just haven't had any more time to deal with it and it's just ridiculous, completely ridiculous, so it's easier for us to, at the moment, run it all out of Jersey' (T22). In some cases, discussions with banks had become heated. One entrepreneur, from the US, complained that `bank customers are treated as suspects' (T21) and described an unsatisfactory meeting with a High Street bank: `Finally I told her "listen, I feel like I'm at my dentist after not brushing for a month"... She got to the point of yelling at us, for no reason actually, so it was really bad, a very very bad experience' (T21). Problems were also reported with borrowing. Difficulties seemed to arise from having no credit history in the UK but may result from wider risk-aversion on the part of banks, as found in recent research by NIESR for the Department for Business Innovation and Skills on bank lending to small and medium sized enterprises (SMEs). The research found that banks restrict lending by constraining credit supply, rather than on decisions about riskiness of borrowers and that rejection rates for bank loans have increased in recent years (Armstrong et al, 2013). One case study entrepreneur described her experience of trying to buy business space: 35
`I found a building that I wanted to buy that would have been a multi-purpose building. We could have had one floor for our initial offices and our first team members and I would have an income from the top two floors. It was 1.2 million and I had half a million pounds for deposit with a couple of million Canadian as collateral for the balance if they were insecure. I could not, under any circumstances get a mortgage from any of the banks because I did not have two year's income taxes, proof of income tax from the UK' (T9). The only option for this respondent was to liquidate her business assets in Canada, which she was reluctant to do since they were performing well. This difficulty was a key factor in her final decision not to set up her business in the UK. Some respondents said that the difficulties and delays they had experienced in setting up a bank account had slowed down the process of establishing their business in the UK, in one case by as long as four weeks. Sources of support Entrepreneurs had accessed various forms of support, informal and formal. Some had studied in the UK to masters level and had developed business contacts through their course. Some were making use of these contacts, for example to sub-contract work such as marketing (T15). Otherwise, few respondents had established social networks which they were drawing on to develop their businesses, but were in the process of developing these. Some respondents had received support from Government bodies, particularly UKTI and Scottish Enterprise. This support had been very welcome and the advice invaluable. Scottish Enterprise had introduced one respondent, a Russian entrepreneur, to a company running tests for the type of technology he was developing. The personal introduction made by the Enterprise Agency was particularly valuable to this respondent. He reflected that 'having someone British speaking their language, it just helps, you know' (T15). The agency had also suggested he file a patent application in the UK and had helped him to do this. They were also helping him to source further investment through matched funding. One entrepreneur from Canada had been disappointed to learn that most of the Regional Development Agencies had been closed and that regional funding was only available to set up in places of little interest to her. She felt that the locations, which included Manchester and Liverpool, were `too removed for a head office' (T9). One investor had received valuable support from the Springboard Accelerator Programme at Cambridge University, which she had attended on a visit to the UK in 2011. The programme organisers had introduced her to UKTI who had assigned her a deal manager. This individual had been of considerable help, advising on matters including the credentials of prospective investors in the business and arranging access to business space (T22). Another respondent had also been offered business space through contact with UKTI but had not taken it up (T21). Entrepreneurs who indicated that they did not have the support they would have liked tended to have quite complex needs, for example the tax rates applying to customers in offshore tax havens (T18). However, it was common for some individuals to have to contact numerous help-lines to access advice and for this to be sometimes conflicting. Therefore a number of respondents 36
suggested a `one-stop-shop' service for newly arrived entrepreneurs, offering advice and guidance over such matters as tax, opening bank accounts, buying and renting property and paying bills. One investor who was buying out a business in the UK had experienced what he felt was unfair competition from a competitor who had obtained funding from the European Union. Although he recognized that this had taken them some years, he still felt that access to advice on such sources of funding, and the `red tape' involved were problematic (T8). Setting up in the UK compared to elsewhere Some respondents made comparisons between setting up business in the UK and elsewhere. Observations included the following: · It is easy to register a business in the UK · Other aspects associated with registering a business in the UK, including tax and national insurance are straightforward but slower than in some other countries · The single legal system in the UK, compared with interstate laws in the UK means that some aspects of business regulation and set up are more simple in the UK · It is considerably easier to set up a bank account in the US, with a simple requirement for ID rather than full credit history as in the UK · The UK tax system is more simple than in the US · Regulations are more complex and require applications to more authorities than, for example, Singapore · Registering business premises from which to employ people involves a more lengthy process of regulation than, for example, New Zealand 3.6 Impacts of businesses and investments Many respondents were highly positive about their move to the UK. The view that the UK is a good place to do business was frequently expressed. Reasons for this included London as a business hub, the UK's position within Europe and access to European markets, ease of set up and the availability of highly skilled professional input, either as staff or contractors. Further factors, mentioned by individuals include access to foreign language expertise to translate products and services, and access to business support, for example UKTI and Scottish Enterprise. Many respondents had obtained their visa relatively recently and their businesses were at an early stage of development. Therefore, when asked what their successes had been to date, respondents referred largely to set up and establishing their product, services or markets. Therefore, areas of success included having got their business off the ground to the point where they were trading and were building a strong customer base. As we explain below, a number were employing staff, hiring sub-contractors, or felt they had generated employment. This extended beyond businesses to personal expenditure. For example, an investor who had spent almost Ј1 million renovating his new home, pointed out he had kept five builders in employment for a year (T8). 37
Slow growth and the effect of the recession A number of entrepreneurs described the start-up process as slow, and some felt they had not made the progress they would have liked. While some of the delays were attributed to red-tape and bureaucracy described earlier, slow progress was also explained with reference to the poor economic climate in the UK, particularly in consumer demand. A number of respondents said this had been one of their key challenges. Entrepreneurs were also wary about rapid growth, feeling that they needed to be sure of their market and get the `right' initial clients. Some businesses had gone past the initial stages and were trading well. One software entrepreneur described how the, in its first year, the business had focused on setting up and recruiting freelance software design staff. He described this period as one of `delayed revenue', since when the product had gone on the market and was doing very well (T16). As we described earlier, a number of investors were keen to start businesses in the UK and these were at various stages of development. One factor limiting their ability to do is the requirement to keep Ј1million in equities. Therefore, some had put their businesses on hold. A further factor was the recession and difficulties in identifying sectors with business potential. However, a number were actively looking for opportunities. Some businesses had not got off the ground, or had not fared well. These included a business which had failed at the first hurdle, when background research the respondent had commissioned on the profile of small businesses in the UK was found to be misleading, having included corner shops which were not the target market for the entrepreneur's product (T9). Another entrepreneur, from South Africa, had aimed to take over a restaurant franchise but, shortly after taking over two branches of the business in 2009, recession hit the High Street. One of the locations reduced to a row of boarded up shops and trade plummeted. This respondent then left a local manager in charge of the other branch, which was barely profitable, and returned to his business activities in his home country (T12). Connecting with businesses and professionals Many entrepreneurs had the advantage of having previous experience of setting up and running businesses. However, a number felt that their business idea was really taking off in the UK, because of access to markets and to skilled professional input. For example, a web-based business established in New Zealand had grown rapidly in the UK and was developing spin-off products, including games and toys (T22). A small number of entrepreneurs were setting up in business for the first time. These included a 25 year old Australian who was developing products for the yachting industry. He described the experience as a steep Learning Curve, in which his only external advice had been from a friend with her own small business. After a somewhat rocky start, which included splitting from his business partner, orders were flooding in: he had recently won orders amounting to Ј8,000 through attending a boat show and through word of mouth. (T18) For many entrepreneurs, it was too soon to have made strong links with other businesses in the UK. However, in some cases these had been developed. These were largely for provision of services such as accountancy, PR and marketing. There was no evidence that migrants were targeting other migrant businesses for these services, but had developed these contacts through word of mouth in the business community, often sector focused, and through advertising. Some respondents said they 38
had been assisted in making such links by business support organizations, particularly UKTI and Scottish Enterprise. Recruiting and employing staff As we noted in Section 1, there is a gap in knowledge about the recruitment activity of migrant entrepreneurs, their hiring patterns and extent of recruitment of native workers. We were able to explore this to some extent although were limited by the fact that only a minority of entrepreneur respondents had recruited staff. A small number had recruited teams of staff, for example a webbased company offering extended warrantees had hired a staff of 10, including a Managing Director (E15). Another entrepreneur had taken over two fast food outlets and, although one had folded, the other continued to keep 14 staff employed (T12). Many respondents did not expect to employ large numbers within a short period of time although planned to do so in the longer term. Recruitment activity was generally focused around highly skilled individuals who could add value to the business and help it develop. A number of respondents had also recruited staff who could deal with administrative and financial aspects. Some entrepreneurs were meeting their staffing needs through sub-contracting services rather than through direct employment. This included contracting with self-employed software specialists and product manufacturers. One respondent had recruited two senior staff, and had contracted out services to a PR firm, a marketing firm, accountants, games designers and numerous consultants to develop new spin-off products from her web-site. She estimated that she had spent Ј200 thousand on contractors in the last year (T22). A range of sources were used to find employees and freelancers, including personal and existing business contacts and Social Media. The website LinkedIn had been used by some entrepreneurs to source staff and freelancers, and some were planning to use it in future (eg T23). Migrant entrepreneurs did not appear to be targeting other migrants as potential staff or contractors, but were aiming to draw from the widest range of talent and expertise available to them. Those needing to fill unskilled posts were recruiting from local labour markets. Some respondents had chosen their location in the UK partly because of the availability of labour (E20). Many respondents planned to recruit staff once their business had become established. In some cases they planned to recruit a sizeable workforce. For example, one entrepreneur, who was setting up a health spa, had recruited only one employee, an administrator, but planned to recruit up to 30 staff and was exploring the possibility of recruiting from a local college (T6). Another was currently advertising for staff through the local Jobcentre Plus (T15). Another entrepreneur, setting up a brewery, planned to have three employees in place within a year, including a brewmaster, sourced nationally, and local staff (E22). Those who had recruited staff had found this a relatively straightforward process. They were very satisfied with the quality of staff they had been able to recruit. However, in some cases, it had been difficult to recruit staff at highly skilled levels. For example, a mechanical engineering business setting up in Scotland had failed to find design engineers in mechanical engineering and had contracted this work to experts in the entrepreneur's home country of Russia (T15). Some respondents had used recruitment companies or head-hunters for this purpose. Some respondents 39
felt that their business will, in time, have wider, dynamic, impacts on employment, for example, an entrepreneur, in the business consultancy sector believed that: `[Software designers] are highly sought after jobs developing the intellectual property and innovation spaces of the UK. They will generate, in very fast multiples, additional jobs, because these things actually grow very fast if they're done well' (T21). This respondent felt that, when considering visa renewal, credit should be given for the quality of jobs created, rather than the number alone. Performance of investments As well as asking respondents how their businesses were performing, we asked investors about their returns. Investment performance, which was largely Government bonds, was reported to poor, with many having reduced in value. However, this was not a matter of concern to investors. As one respondent with a very high net worth remarked: `How the investment is performing is not necessarily going to change what I eat or drink each day, so let me put it to you that way' (T17). Investors generally had sufficient other resources for any loss on their investment to be a minor concern. One respondent had bought two residential properties and was renting one out and living from the income. Moreover, relatively small financial losses were not a concern to investors because they had, by and large, chosen to come to the UK for social, personal and family reasons. A number were also very wealthy indeed and were not concerned about short-term loss of investments. 3.7 Reflections and future plans Views and reflections on the Tier 1 visa application process In reflecting on the application process, respondents said they felt it might have been better in a number of ways: these included the cost of the visa, particularly for families. As described earlier, a number said they would have preferred to have applied for the visa from within the UK. Terms of the Tier 1 visas A number of respondents commented on the terms of the visa. We have already referred to the residency requirement of 180 days a year as an issue for some investors who had active business interests which led them to regularly work outside the UK. Some investors said they would like the UK Border Agency to exercise some discretion around this requirement in making decisions over visa renewals and in granting Indefinite Leave to Remain. A number of entrepreneurs and investors commented on the minimum funds requirements. Their comments principally concerned the entrepreneur requirement of Ј200,000. It was thought that this requirement prevents some budding entrepreneurs with sound business ideas from coming to the UK. This was seen to apply particularly to software developers who do not necessarily need to have a physical presence in local markets and therefore have a wide choice of work locations. One respondent believed that Germany does not have a minimum funds requirement for migrant 40
entrepreneurs. One view was that the previous Highly Skilled Migrant Programme was better at enabling these individuals to come to the UK. Investors generally felt that the Ј1million minimum was appropriate, but it is important to recognise that our sample is biased in excluding those who could not meet this. One investor from Australia had been involved in assisting Asian investors wanting to move to the UK. He felt it is important that the minimum requirement is not raised since, while individuals might have the necessary finance, many are not prepared to bring in large portions of their assets immediately. One reason for this is the exchange risk, which can lead to heavy financial losses even before the money is banked. As we described earlier, respondents commented on the entrepreneur visa requirement to have registered a company within 6 months and to have employed two people within two years. This requirement was seen as particularly problematic for individuals who are not able to spend time in the UK on pre-setup activities. A number of respondents commented on the length of time it can take for some businesses to have reached the point at which they employ people and become profitable. One respondent, who had Ј1.2million ready to set up a business, had come through the investor route rather than face time-pressure to achieve results. His message to policy makers was: `Don't expect people to walk in and to be able to turn business on straight away, there's going to be a lead time always' (T8). He expected his prospective business to be successful within five years, rather than four. Another respondent, an entrepreneur from Canada, had experienced a number of set-backs and decided not to continue with the visa, explained: `It would have taken us almost two and a half years to set up and I doubt we would have been generating enough income to get our visa renewed, even if we went in full blast, because every business has a start up cycle and, in our industry [business software] it's getting enough of a client base for a momentum..... the five year window would have done that' (T9). Some respondents suggested that some discretion should be used when making visa extension decisions in cases where businesses had not reached the required milestones. Other terms of both the entrepreneur and investor visas that were viewed as problematic by small numbers of individuals included restrictions on the right to work as an employee. Future plans Finally, respondents talked about their future plans. These largely concerned the development of their businesses since, as we have explained, some of these were at quite an early stage. Factors that might affect the decisions they make and their longer-term plans were largely business-related and centered on establishing a customer base and becoming profitable. Some concerns were political. One of these was uncertainty over the UK's continued membership of the European Union. Many of the entrepreneurs had moved to the UK to have a base in Europe, 41
either in general or Northern Europe in particular. Therefore, they felt that it would be highly detrimental to their business if the UK should withdraw or even if this became a possibility, through the scheduling of a referendum. One respondent, who had obtained a Tier 1 visa but had not been able to set up the business, was re-considering his plans to move to the UK, which were principally personal: 'With the Tories' [sic] general stance on immigration and, more importantly, on the EU referendum, all things being equal I would rather my kids have an Irish passport than a British because there is a slight chance that, if there is a referendum, the UK will be out...... London is the largest English-speaking capital in the EU. If it is not that any more, the picture in the medium term will look somewhat bleaker'. (E4) However, in most cases, the concern was focused on business and markets. Therefore, one young entrepreneur explained that `the main value to me [of a British passport] would be to have access to other European countries' which he was concerned might be in some way restricted if the UK left the EU. Respondents also talked about their personal plans. Investors in particular were keen to settle in the UK, build friendships and connections and, in some cases, bring family members to join them in the UK. Therefore they were looking forward to gaining Indefinite Leave to Remain. However, they did not necessarily intend to remain in the UK forever and were keeping their options open. Having a UK passport would give them the flexibility over where to live to pursue their plans for their financial, business and personal lives. 42
Section 4 Conclusions and implications for policy This section summarises the existing theory and evidence on the economic impacts of skilled migrants, from existing research and datasets and from our new, case study, research with Tier 1 migrants. We draw some conclusions from our combined analysis and set out some high-level implications for policy in relation to highly skilled migration. 4.1 Skilled migration: findings from the evidence and data reviews Framing the wider impacts of skilled migration Theory and evidence suggest that the economic impacts of migration ­ particularly skilled migrants ­ run well beyond the labour market. A `wider impacts framework' is thus important for policymakers. This review sets out such a framework, organised around a series of `production side' and `consumption side' channels. Skilled migration may have effects on levels and patterns of entrepreneurship, investment, innovation ­ and thus productivity and employment ­ in receiving countries. We may also see some effects on the consumption side, especially in the interaction of production side comparative advantage and new (migrant-driven) sources of consumer demand. Theory also suggests these channels may have positive or negative outcomes, and distributional consequences are complex. In practice, the global evidence base suggests impacts are typically net positive on welfare, although we know very little about distributional effects. Critically, the empirical evidence also suggests that impacts of skilled migrants in any given receiving country are influenced by a) the size of the inflow b) the specific sending country / community c) industry sector and d) wider receiving country institutional and cultural factors. In turn, these four factors are likely to interact, especially via e) historical, cultural and economic links between sending and receiving communities. The evidence, and its implications for the UK In a country such as the UK, which has experienced repeated waves of migration rather than a single 'shock', and where migrants' average skill profile is close to that of natives, there are good reasons to expect some wider impacts of skilled migrants, beyond the labour market (Nathan, 2012). Entrepreneurship International evidence suggests that migrants are typically more likely to be self-employed than natives, for a number of reasons. Large, skilled diasporic communities seem particularly important for predicting entrepreneurial activity, with subsequent positive links to employment and innovation. Skilled migrants enter through higher education as well through the migration system. In the UK, skilled migrant entrepreneurs are likely to be clustered in sectors where the UK has some comparative production advantage, and spatially clustered in large urban areas. However, migrants' entrepreneurial activities are also driven by a number of other factors, including financial resources, class, and host country attitudes and institutions. Existing UK evidence suggests some positive links between migrant status and entrepreneurship, both nationally and in major cities such as London. 2011-12 LFS analysis for this report finds that around 1/5 of self-employed non-EU migrants employ staff, with 3.2 employees on average. 43
The international evidence suggests non-EEA countries, notably India, China and Taiwan, are important for generating migrant entrepreneurs. However, this evidence largely draws from the USA, and may not transfer to the UK. Exploratory work for this report using FAME and UK Border Agency analysis suggests that for companies with Directors from the largest Tier 1 sending countries and age groups, India and the USA are the leading source nations for company directors; overall, these target companies tend to be smaller than average in employment and revenue terms; but companies with Chinese, Indian-origin directors are larger than average. Note that this analysis is preliminary and should be treated with great caution. Further analysis that directly matches Tier 1 entrants and firm-level information could provide more definitive answers. Investment As with the entrepreneurship channel, the international evidence suggests that the presence of large, skilled migrant communities is linked to higher aggregate bilateral trade and investment flows. Diasporas play important roles in plugging information gaps and lowering transaction costs. Existing evidence concentrates on return flows (to sending countries) and there are relatively few studies looking at the effects for host countries. However, it is reasonable to expect net positive effects on investment and trade for the UK for skilled migrants, especially for those entering through programmes like Tier 1. The literature raises important questions about which sending countries matter: the evidence suggests that aggregate effects are highest for sending countries where there is no / little previous trade, so that gains to trade are biggest. There is some suggestive UK evidence for this: A8 accession has been predicted to be overall trade-enhancing for the UK; export gains from non-Commonwealth migrants are greater than those from Commonwealth countries. At the individual level, there is now good international evidence that experienced investors (or experts) play important knowledge transfer roles for recipient firms. Again, it is reasonable to expect such channels to operate for (at least some) Tier 1 investor entrants, especially in sectors such as ICT/digital economy where many investors have a deep industry background. However, there are no extant UK studies on this, and existing data sets are of limited use. Innovation Theory and evidence suggests skilled migrants may directly affect innovative outcomes via selection of individual stars, co-ethnic / diasporic group externalities, and team / firm-level diversity effects. As with entrepreneurship, the evidence points to the importance of higher education entry points as well as entry via skilled migrant routes. Much of the empirical evidence is for the USA, but there is a developing UK and European evidence base. A number of European Studies suggest positive links from team / workforce diversity to innovation, although few of these directly explore skilled migrants. UK evidence suggests positive area-level links from skilled migrants to innovation by firms, especially in export-intensive sectors; this may be explained by other work which finds connections between top team diversity and firms' innovation. Other UK research with patents data finds positive links from diverse inventor communities to individual patenting. 44
Migrant entrepreneurship may also indirectly spur innovation by incumbent firms in sectors where migrant-businesses enter (weaker firms may exit, with welfare-negative employment effects). Again, it is reasonable to expect this process to be operating in the UK, although we have no UK evidence either way as yet. Consumption The review of evidence suggests that skilled migrants are unlikely to have strong direct effects on the consumption side of the UK economy - especially Tier 1 migrants, where inflows are small. Support for this is found in existing analysis for the much larger group of Tier 2 migrants, which found no evidence of housing market effects. However, it is reasonable to expect some impacts of the mix of goods and services, especially via production-side entrepreneurial activity. This channel is hugely under-explored in the international literature, with this review only locating one study. Skilled migrants, especially high net worth individuals, may also have different preferences from other migrants (and much of the native population). LFS analysis for this report finds notably high levels of home ownership for self-employed non-EU migrants, which may be indicative of other consumption differences. Again, though, small group sizes imply aggregate impacts will be small. 4.2 Tier 1 entrants: findings from the case study research Given the wider evidence base on skilled migration, what impacts are we likely to find in the UK now for Tier 1 entrants specifically? The specific impacts of Tier 1 entrepreneurs and investors are rather harder to identify than those for skilled migrants in general. We might expect to see production-side impacts at individual and firm level, which may also affect market-level outcomes in some sectors. For investor and entrepreneur sub-groups, we might feel individual production-side effects are most plausible. It is harder to see a priori that substantial consumption-side effects might occur, and the available UK evidence (e.g. on housing market impacts) tends to back this up. One key point is that Tier 1 group sizes are fairly small: in 2011, the most recent year for which we have data, 11,700 Tier 1 entrants made up 12.5% of the overall inflow through the Points Based System, of which 315 Entrepreneurs and 185 Investors comprised 2.7% and 1.6% of the Tier 1 inflow respectively. Overall numbers at the present time will be affected by grants of stay and/or exits from previous years. The MAC's internal analysis also highlights the great diversity of sending countries, even within the small Tier 1 set. This is reflected in the diversity of our case study sample. This implies that economic effect of the average Tier 1 entrant may be small; however, specific individuals may have large impacts via (for example) founding a number of new companies in the UK, or making major investments in a series of UK firms. The evidence also suggests that a number of other opportunities and constraints influence skilled migrants' economic outcomes. 45
The review suggested a number of issues to explore in the primary research both for Tier 1 entrepreneurs and investors. We were able to cover a number of these in the case study research, including factors assisting and hindering business development, hiring practices, investment activity and consumption. A second key point is that, given current economic conditions in the UK, and the relatively short life of Tier 1 policies to date, it is challenging to explore all the potential issues and channels identified for skilled migrants in general, for the Tier 1 group in particular. Specifically, investigation of some issues identified in the evidence review was limited by the relatively short time that many of the entrepreneurs had been in the UK. For example, we were not able to fully assess the roles of disaporas and co-ethnic communities in enabling entrepreneurs to set up and develop businesses; neither were we able to examine the role of investors in advising other investors and the firms in which they have a financial stake. However, there were clear indications that many businesses were beginning to make an economic impact through recruitment, sub-contracting and deployment of professional skills. The sample of case study individuals matches well with what is currently known about the profile of migrant entrepreneurs and investors: the former are relatively young, many aged in their thirties and highly educated. Investors tend to be somewhat older and to been highly successful in business, sometimes globally. Many entrepreneurs had also successfully set up businesses, and were using proceeds to finance their move and new business in the UK. Only a few of the sample were setting up in business for the first time. This may be a consequence of the terms of the Tier 1 entrepreneur visa (see below). Entrepreneurs' businesses covered a wide range of sectors. Some were in the IT sector, and the UK was seen as having conditions conducive for the growth of such businesses. The impact made by Tier 1 entrepreneurs Many of the case study respondents had obtained a Tier 1 visa fairly recently so it was too early to make a full assessment of the economic impact they had made. Aside from the short period of time since their arrival in the UK, other Factors Affecting progress included delays in setting up resulting from bureaucratic requirements, and the unfavourable economic climate for business. Some businesses had not got off the ground or had been put on hold. However, it was apparent that many were achieving some success. This included generating new products and services, recruiting staff, hiring freelance staff and consultants and contracting out of production and service delivery. A number of businesses had recruited local people or were planning to do so. Applying for and meeting the terms of the Tier 1 visa The actual process of applying for a Tier 1 visa was found to be straightforward and the website was clear and easy to follow. However, again, this may reflect some bias among respondents who included only a few initially unsuccessful applicants. Many respondents commented on the high cost of the application fee, particularly where they were applying for their dependents to join them. Most of the terms of the visa were found to be acceptable to respondents. However, while our sample includes some individuals who had been unsuccessful, and some who were required to resubmit their application, it does not include those who found the terms too unacceptable to make an application. Even so, both entrepreneurs and investors involved in the research raised some design issues for future versions of both the Entrepreneur and Investor tracks: these aresummarised in Figure 1. 46
Setting up and availability of support Most aspects of setting up in business in the UK were found to be straightforward, with an important exception: opening a bank account was found to be highly problematic for many entrepreneurs and investors, some of whom reported unsatisfactory experiences and exchanges with banks. Those individuals who did extensive research on the potential for their business before coming to the UK appeared to be making more progress than those who did not. However, this was not always the case, since one business had been misled by the findings of research they had commissioned. Business support, both before and after arrival, was found invaluable by those who had accessed it, with UKTI and Scottish Enterprise singled out for particular praise. One of the attractions of the UK to entrepreneurs was its location within European markets, with many viewing the UK as an ideal base from which to tap into these and travel within Europe. The availability of business support and the supply of expertise and highly skilled labour were also factors in entrepreneurs' decision-making. For investors, decisions were more personal and sometimes included emotional and sentimental attachments to the UK. 47
Figure 1: Design of the tier 1 visas Some entrepreneurs had experienced difficulty raising the minimum funds required. These included young entrepreneurs setting up in business for the first time. Some respondents expressed the view that the requirement favours individuals with both an established track record in business, and detailed knowledge of the UK, so and deters young entrepreneurs with sound business ideas setting up for the first time. Therefore, the requirement to have funds of up to Ј200,000 may be preventing young entrepreneurs from coming to the UK. This may represent a lost opportunity for the UK to benefit from the economic and employment impacts of new, potentially successful, businesses. Other countries do not levy these fees (see below). Employment restrictions on Tier 1 entrepreneurs also make it difficult for individuals to earn while their business is taking off, therefore cutting off a potentially important source of support. Many who had come via the entrepreneur route were concerned that they would not meet the milestones for business set up and recruitment to get their visa renewed and to achieve Indefinite Leave to Remain. This was particularly in view of slow start up resulting from current economic conditions. They were reluctant to expand too quickly, in fear of over-stretching the business at an early stage. They would like the UK Border Agency to exercise discretion when considering the progress made by the business, although did not expect this. A number of investors also wanted to set up enterprises in the UK and some entrepreneurs also wished to invest in other businesses than their own. Some applicants had not been sure which of the Tier 1 visas was best for them and it was apparent that some had chosen the less suitable option. The principal reason why some would-be entrepreneurs had chosen the investor route was to avoid the restrictions of the entrepreneur visa. In line with the experiences of many entrepreneurs, they saw its milestones for business set up and recruitment as overly prescriptive, particularly given the current economic climate. This suggests that the current requirements attached to the tier 1 visa may be deterring potential entrepreneurial activity. Investors are restricted in where they place their funds, and most had invested in Government bonds. They were generally content with this arrangement, although they had experienced losses. Some respondents either had other investments in the UK or were planning to make these. Strikingly, a number of respondents who had come via the investor route also wished to set up businesses in the UK and required funds to do this. Therefore, the requirement to keep the investment in place may restrict entrepreneurial activity by less wealthy investors. Some investors felt that the residency requirement of 180 days a year is too restrictive, given that many are involved in business activity outside of the UK. This requirement may be encouraging applicants to apply for investor visas in their spouse's name, in most cases a wife. Respondents were also concerned at the prospect of having their passport retained by up to six weeks during the renewal application period. This was a concern for many entrants with family and/or business interests outside the UK. 48
Consumption There is anecdotal evidence of activity of Tier 1 migrants, particularly investors, in relation to the purchase of high value residential property. There was some evidence of the consumption patterns of Tier 1 migrants from the case study research, including investment in renovation. However, many respondents were renting property and did not intend to buy until they were more settled. Some found UK prices, particularly in London, very high and were reluctant to buy until they were more certain of the market. Therefore, current speculation about the effect of wealthy migrants on the property market may not accurately reflect the circumstances of many newly arrived entrepreneurs. 4.3 Policy implications Literature has little to say directly on the design effects of specific immigration policies on entrepreneurial activity (although see Schuetze and Antecol (2007) and Mahuteau et al (2011) for two recent studies). Theory and evidence also suggest that policymakers cannot definitively identify future successful entrepreneurs, investors or innovators, but can design policy to maximise the likely set of these groups. Specifically, the evidence review suggests some high-level policy lessons: · Entrepreneurship ­ Notably, countries such as Canada and Chile that have launched entrepreneur visa programmes do not levy financial bonds (Wadhwa (2012)).7 Policymakers should monitor the future outcomes of these programmes and benchmark these against the UK. More broadly, skill-biased migration policies for non-EEA countries that seek to select entrepreneurs, and are joined up to industrial strategy and pro-startup / business growth initiatives, might generate higher overall rates of skilled migrant entrepreneurship. Our case study evidence suggests that the active support of UKTI and business support agencies to Tier 1 entrants is welcomed. Given the importance of HE in migrant enterprise, these migration policies may need to include changes to student visas and post-study stays. They might also include more targeted support to entrepreneurial activity by recent migrants, who are likely to be less familiar with basic steps to business set up than natives. · Investment ­ skilled migration policies that hope to generate additional investment, or better matched investment flows should a) target high net worth individuals who are experts, not just rich individuals and b) integrate migration regimes with trade / investment policies aimed at large new markets, such as the BRICS. There was evidence from the case studies that investors frequently have sector-based expertise which they can use in entrepreneurial activity, if visa restrictions do not prevent this. · Innovation ­ the evidence suggests that skilled migration policies that seek to promote innovation should open up HE entry routes and relax post-study restrictions, in order to attract stars and to facilitate longer term knowledge flows through the creation / expansion of diasporic 7 Specifically, Chile runs a competition for embryo businesses (judged by an international expert panel) in which successful applicants receive financial support and office space. Canada requires entrants to have the support of a Canadian angel investor group or venture capital fund; Canadian VC/angel umbrella groups then filter applications. Canada also requires applicants to have funds to cover family members' living costs. 49
links. Some of the case study respondents had studied for masters degrees at UK universities and were developing successful businesses, sometimes drawing on their university connections. · Consumption ­ it is reasonable to expect skilled migration to have effect on product/service mix, especially in non-tradeable sectors, as skilled migrant entrepreneurs may have a comparative advantage in spotting market niches. To the extent added variety represents a welfare gain to consumers, policy should encourage skilled migrant entrepreneurs. Anecdotal evidence of widespread property purchase by wealthy investors was not supported by the case studies, which included individuals of more modest means. The primary research also helps generate some specific implications for UK policy . These are as follows: Attracting the right applicants for the Tier 1 visa The experiences and views of entrepreneurs that the UK is a good place to do business, and that the conditions are particularly favourable in the IT sector might be used to inform UK marketing of the visa to potential applicants. The minimum fund requirements for the entrepreneur visa of Ј200,000 reduce the risk that an individual does not have the financial resources behind them and therefore falls at the first hurdle. However, one consequence is that the visa attracts individuals with an established track record in business and, at the same time, may deter young entrepreneurs with sound business ideas setting up for the first time. There may be scope for flexibility within the visa for this group, whose business plans and viability could be assessed as part of their application. This assessment might be carried out through coordination between the UK Border Agency and Department for Business Innovation and Skills (BIS), particularly UKTI. Some flexibility might be applied to current restrictions on the employment of Tier 1 entrepreneurs who do not have spare resources in the early days of business set up. The attraction of the UK in relation to the rest of Europe was a factor encouraging some entrepreneurs to come to the country. The ease of travel across Europe was highly valued. A number expressed concern at the possibility that the UK might discontinue its membership of the European Union, or that the uncertainty which a referendum on the issue would be damaging to business. Those responsible for marketing the UK to potential entrepreneurs should be aware of such concerns among potential entrepreneurs and seek ways to address these. Improving the design of the Tier 1 visa The lack of a clear distinction, in some cases, between an entrepreneur and an investor may need further consideration in relation to visa requirements. Some of the case study respondents were investors who also wanted to set up their own businesses, while some entrepreneurs wanted to invest in businesses other than their own. These circumstances were seen by some individuals to be potentially problematic and the terms of their visas too restrictive. An unintended consequence is the discouragement of entrepreneurial activity by wealthy investors. Therefore, the ease or difficulty of combining both activities within the same visa may need to be examined. 50
The residency requirement of 180 days a year is too restrictive for investors, given that many are engaged in business activity outside of the UK. Its consequences, which can include applications made by the spouse of the investor, frequently a wife who is less mobile, may need to be reviewed. Helping businesses to set up and develop in the UK The problems experienced by some entrepreneurs and investors with the UK banking system should be regarded as a matter of some concern. Many reported difficulties simply opening a bank account. The experiences of some individuals are potentially damaging to the UK's image as a place to do business and need to be addressed. The finding that those individuals who did extensive research before coming to the UK appeared to be making more progress than those who did not suggests that more input at this stage may pay off. There may be scope to increase the availability of advice to prospective migrant entrepreneurs, through UKTI or advisory services to small businesses. Coordination between the BIS, particularly UKTI, and the UK Border Agency at both the application and renewal stage could help ensure that businesses with most potential are identified and given targeted support. Similarly, business support after arrival was found invaluable by those who had accessed it and should be made available to entrepreneurs, particularly those starting out in business for the first time. The suggestion of one-stop-shop for new entrepreneurs may also be helpful and could possibly help businesses get off the ground more quickly. Improving the visa renewal process Given the current recession and difficulties facing some businesses, there may be scope for UK Border Agency (with input from BIS/UKTI) to exercise discretion in assessing progress of enterprises against the required milestones when making decisions about visa renewal. The danger of rigid milestones is that they can encourage businesses to expand too quickly, damaging long-term growth. Case study evidence suggests that Tier 1 businesses have a range of impacts. These include generating new products and services, recruiting staff, hiring freelance staff and consultants and contracting out of production and service delivery. A number of businesses had recruited local people or were planning to do so. These wider impacts should be taken account of in the renewal process. Having a passport retained by UK Border Agency during renewal of a visa can cause serious inconvenience for entrepreneurs and investors with business interests outside the UK. Therefore, where possible, the period of retention of passports should be as short as possible. 51
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Appendix 1 Table of Studies A complete table of studies reviewed is set out below. We have not included documents written purely from a policy or marketing perspective unless these include research. The research was assessed using four criteria: 1) is there a clear account of the research process? 2) are the methods appropriate and reliable? 3) is the data of good quality? 4) are the findings credible and clearly related to the evidence? Studies were then assessed on a quality scale of 1 through 3, where 1 is the highest rank. In the main report we generally use only studies ranked 1 and 2, except where studies ranked 3 provide specific information not otherwise available. Studies are organised by alphabetically, by year published. For each study, we report the economic outcome of interest, the data and country/ies covered, the methodology, and key findings. Publication types are peer-reviewed journal articles (J) / working papers (WP) / books / chapters (B) or reports (R). Findings are not reported for evidence reviews. 62
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
1
Bonacich 1973 Entrepreneurship Theory / global None
Develops the concept of the 'middleman minority' [sic]. Immigrants
1
(J)
can become 'orientated' towards both home and host countries, and
to immigrant and host communities. This may lead to issues around
integration, but also has some economic affordances.
2
Light (J)
1984 Entrepreneurship Review of
None /
1
theory and US sociological
empirics
analysis
3
Aldrich
1990 Entrepreneurship Theory and
None
and
review / global
Waldinger
(J)
Assesses ethnic enterprise research, using a framework based on
1
three dimensions: an ethnic group's access to opportunities, the
characteristics of a group, and emergent strategies. Ethnic groups
adapt to the resources made available by their environments, which
vary substantially across societies and over time.
63
Count Author
/type
4
Wong (J)
Date Economic outcome Data / focus
1993 Entrepreneurship, Secondary /
investment
Canada
Methodology Key findings / key points
QA
(1-3)
None
Suggests that entrepreneurial and self-employed migration
3
programmes provide opportunity for wealthy foreigners to obtain
immigrant status, with questionable benefits. Argues that 'capital via
immigration is likely to be encouraged by government and therefore
affect class and class relations as well as lead to cultural
transformations.'
5
Basu (J)
1998 Entrepreneurship 78 Asian small Cross-sectional Focuses onsmall retail firms. Finds that entry depends largely on the
2
businesses / UK. survey, non-
access to informal, rather than formal, sources of capital and
Firms are largely random /
information or advice as well as on the entrant's previous experience.
in the retail,
snowballed
Business success appears to be closely related both to the share of
distribution
sample
personal capital invested at start-up and to the entrepreneur's
(wholesale) and
educational qualifications. ... The predisposition of many well
catering sector
educated Asian migrants towards establishing businesses with their
and are located
own capital in an unfamiliar environment illustrates their
in the south-
entrepreneurial spirit. Banks and government agencies could help in
east.
future business formation.
6
Auerbach 1998 Fiscal impacts
and
Oreopoulo
s (J)
Theory / global None
Emphasises importance of dynamic approach to modelling fiscal
1
impacts: fiscal impact of immigration partly depends on
current/future weighting. Fiscal responsibility / austerity policies
reduce the fiscal gain from immigration, by dampening consumption
side effects. 'Overall, the impact of immigration on fiscal balance is
extremely small relative to the size of the overall imbalance itself.
Thus, immigration should be viewed neither as a major source of the
existing imbalance nor as a potential solution to it.'
64
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
7
Basu and 1999 Entrepreneurship Cross-sectional Descriptives + Questions role of cultural factors in shaping SME success. Points to
1
Goswami
survey of 118 ANOVA
importance of 'educational attainment, personal savings invested at
(J)
Asian small
start-up, hard work in the initial stages, and the delegation of
businesses / UK,
responsibilities to non-family members' Also suggests that human
with annual
capital improvement and product / process innovation influence
sales of Ј2m+
growth. 'Later entrants into business gained relevant prior work
and at least 10
experience and focused on serving non-Asian customers, which may
employees
have contributed ... strong evidence that entrepreneurs with larger-
sized businesses have developed international linkages and focused
on one key business area.'
8
Rath and 2000 Entrepreneurship Secondary
None
2
Kloosterm
(evidence
an (B)
review)
9
Clark and 2000 Entrepreneurship Cross-section Probit +
Finds that individuals with low English fluency, and recent immigrants, 2
Drinkwater
(self-employment) survey data, n = robustness
are less likely than other members of ethnic minorities to be self-
(J)
8000 / England checks only
employed. Perhaps surprisingly, this is also true of individuals living in
and Wales
"enclaves" - areas with a high percentage of their own ethnic group.
The relatively deprived nature of such areas of England and Wales
may explain this.'
65
Count 10
Author /type Lee and Miller (J)
Date Economic outcome Data / focus
2000 Fiscal impacts
Projections 1998-2098, various data sources / USA
11
Storeslette 2000 Fiscal impacts
n (J)
Various public data sources / USA
Methodology None / CGE
Key findings / key points
QA
(1-3)
Authors note that population aging and rising health costs will cause
1
dramatic increases in federal expenditures ... Rising immigration to
the United States may help avert this future crisis by slowing
population aging and helping to pay for Social Security and public
health care. But many immigrants have low education and high
fertility, so their net fiscal impact may be costly rather than beneficial
... 'a policy of admitting only high-education immigrants of young
working ages could be highly fiscally beneficial, consistent with the
findings of Bonin et al. (1998), Auerbach and Oreopolis (2000), and
Storesletten (2000). However, such a policy would most likely conflict
with other goals of immigration policy.' (p354)
CGE overlapping The paper 'investigates whether a reform of immigration policies
1
generations
alone could resolve the fiscal problems associated with the aging of
model with
the baby boom generation. Such policies are found to exist and are
calibration on characterized by an increased inflow of working-age high and medium
US data
skilled immigrants. One particular feasible policy involves admitting
1.6 million 40-44 year-old high-skilled immigrants annually.'
12
Gandal et 2000 Productivity,
al (WP)
production
technology
Sectoral dataset Decomposition Authors look at 'two open-economy mechanisms through which Israel 2
for K and L in of capital and may have absorbed changes in labor supplies related to the Russian
four skill
labour shares, immigration inflow: the adoption of global changes in production
groups, Israel, using
technology, and national changes in the mix of traded goods
1980-1996
production side produced. Our main finding is that global changes in production
of H-O model techniques, which appear consistent with skill-biased technical
change, were sufficient to more than offset Israel's change in relative
factor supplies due to the Russian influx and other events. We also
find that changes in output mix (in either traded or nontraded
industries) did not help Israel absorb changes in relative factor
supplies.'
66
Count Author
/type
13
Godley (B)
Date Economic outcome Data / focus
2001 Entrepreneurship
Census and marriage records / London, New York
Methodology Historical / Comparative analysis
14
Kloosterm 2001 Entrepreneurship Theory and
None
an and
evidence review
Rath (B)
/ global
Key findings / key points
QA
(1-3)
Finds that Jewish immigrants in New York were much more likely to
2
move into entrepreneurial occupations than those in London, and it is
demonstrated that this was not due to any differences in their
backgrounds. Because the immigrant culture emphasized a high
degree of conformity, immigrants adopted their host cultural values
quickly. Suggests evidence of a relatively anti-entrepreneurial culture
in Britain.
1
15
Kemnitz (J) 2001 Fiscal impacts
16
Stephan
2001 Innovation
and Levin
(J)
Theory
none
Theoretical modelling of the welfare implications of immigration when 1 growth is endogenous. In contrast to standard neoclassical results, immigration will benefit an arbitrary native if and only if the average immigrant possesses more capital than the average native.
Cross-section of Descriptive and Paper finds that 'although there is some variation by discipline,
2
4,500 US
ANOVA
individuals making exceptional contributions to science and
scientists and
engineering in the U.S. are disproportionately drawn from the foreign
engineers / USA
born. Only in the instance of hot papers in the life sciences were we
unable to reject the null hypothesis that the proportion is the same as
that in the underlying population ... We also find that individuals
making exceptional contributions are, in many instances,
disproportionately foreign educated, both at the undergraduate and
at the graduate level ... We do not investigate, however, whether U.S.
scientists and engineers have borne part of thecost of the inflow of
foreign talent by being displaced from jobs and/or earning lower
wages. Nor do we investigate the cost to the countries of origin.'
67
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
17
Basu (B)
2002 Entrepreneurship 163 interviews Descriptive
with London
analysis
entrepreneurs
from six
The findings indicate 'diversity in business entry motives, patterns of
2
start-up finance and family involvement in business among the
different ethnic groups. These may be explained by differences in
several cultural attributes including family tradition, migration
different migrant
motives, religion, family links, business experience and educational attainment. The evidence suggests that the interaction between
communities: Indian, East African Asian, Pakistani,
culture and entrepreneurship is stronger in the case of some ethnic groups than others.'
Bangladeshi, Turkish Cypriot, Turkish
18
Saxenian 2002 Entrepreneurship, 100 + interviews Descriptive
Finds that 'skilled immigrants account for one third of the region's
1
(J)
trade
with Silicon
analysis
engineering workforce and are increasingly visible as entrepreneurs
Valley
and investors. Two thirds of the region's foreign-born engineers were
entrepreneurs,
from Asia. Chinese and Indian immigrants in turn accounted for 74%
VC and policy
of the total Asian-born engineering workforce. In 1998, Chinese and
actors / USA
Indian engineers were senior executives at one quarter of Silicon
Valley's technology businesses. These immigrant-run companies
collectively accounted for more than $26.8 billion in sales and 58,282
jobs. The region's most successful immigrant entrepreneurs rely
heavily on ethnic resources while integrating into the mainstream
technology economy.'
19
Quispe-
2002 Productivity
Agnoli and
Zavodny (J)
US state-level Spatial
Finds that 'labour productivity is lower in both high-skill and low-skill
2
data, 1982-1992 correlations
industries through immigration. This is likely to be ikely a short run
with shift-share effect related to assimilation.' Note, only 51 obs.
IV
68
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
20
Girma and 2002 Trade
Bilateral trade Gravity model, Immigration from non-Commonwealth countries is shown to have a
2
Yu (J)
flows and
no causality
significant export-enhancing effect. By contrast, immigration from
migration 1981 checks
Commonwealth countries is found to have no substantial impact on
and 1991, UK
exports. Authors conjecture that 'this could be because immigrants
and
from the UK's former colonies do not bring with them any new
Commonwealth
information that can help substantially reduce the transaction cost of
/ non-
trade between their home countries and the host nation. The study
Commonwealth
also reveals a pro-imports effect of immigration from the non-
countries
Commonwealth countries, whereas immigration from the
Commonwealth appears to be reducing imports, reflecting trade-
substituting activities by immigrants.'
21
Rauch and 2002 Trade
Trindade
(J)
Cross-country Gravity model Paper finds that 'ethnic Chinese networks, proxied by the product of
1
analysis, 63
using ethnic
ethnic Chinese population shares, increased bilateral trade more for
countries, 1980 Chinese
differentiated than for homogeneous products. This suggests that
and 1990
population
business and social networks have a considerable quantitative impact
shares, 3 types on international trade by helping to match buyers and sellers in
of goods
characteristics space, in addition to their effect through enforcement
of community sanctions. For trade between countries with ethnic
Chinese population shares at the levels prevailing in Southeast Asia,
the smallest estimated average increase in bilateral trade in
differentiated products attributable to ethnic Chinese networks is
nearly 60%.'
22
Saiz (J)
2003 Consumption (rental prices)
Metro area rent Exogenous
Paper looks at the Mariel boatlift, which added an extra 9% to
1
and house
shock of Mariel Miami's renter population in 1980. Finds that 'rents increased from
prices, 1974-83 boatlift on
8% to 11% more in Miami than in the comparison groups between
/ USA
Miami, diff in 1979 and 1981. By 1983 the rent differential was still 7%. Rental units
diff with two
of higher quality were not affected by the immigration shock. Units
comparators
occupied by low-income Hispanic residents in 1979 experienced an
extra 8% differential hike with respect to other low-income units.
Relative housing prices moved in the opposite direction from rents in
the short run.'
69
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
23
Kloosterm 2003 Entrepreneurship Review
Various
2
an, Russell
and Rath
(B)
24
Ruef et al 2003 Entrepreneurship 830 'nascent'
Structural event Findings suggest that 'homophily and network constraints based on
1
(J)
(composition of
entrepreneurs. analysis [case- strong ties have the most pronounced effect on group composition ...
founding teams)
Phone interview control].
and
Sociological
We found strong support for one mechanism that influences group composition: homophily with respect to both ascriptive and achieved
questionnaire frameworks data collection /
characteristics (in particular, gender, ethnicity, and occupation).'
USA
25
Storeslette 2003 Fiscal impacts
n (J)
Macro
CGE analysis
The paper computes the net fiscal effects from admitting immigrants
2
modelling with
into a welfare state with large expenditures and a large tax burden
Swedish data
(Sweden). Finds that 'the present value of future tax revenues minus
outlays is potentially large; USD 23,500 per young working-age
immigrant, but an average new immigrant represents a net
government loss of USD 20,500. The dominant factors are
employment rates and age.'
26
Rauch and 2003 Investment, trade Theory
Casella (J)
(sending and
receiving)
None
Main takeway from the model is that 'incomplete information creates 1 matching friction that interferes with the ability of prices to allocate scarce resources across countries but can be overcome by international information-sharing networks.'
27
Edin et al 2003 Wages /
6418 migrants, IV, exploiting Paper finds that 'when sorting is taken into account, living in enclaves 1
(J)
Entrepreneurship 1987-1989 /
policy
improves labor market outcomes for less skilled immigrants: the
Sweden
experiment
earnings gain associated with a standard deviation increase in ethnic
(randomised
concentration is 13 percent. Furthermore, the quality of the enclave
initial location) seems to matter. Members of high-income ethnic groups gain more
from living in an enclave than members of low-income ethnic groups.'
70
Count Author
/type
28
Basu (J)
29
Zhou (J)
30
Light (J)
Date Economic outcome Data / focus
Methodology
2004 Entrepreneurship
Interviews with 60 immigrant entrepreneurs from five different ME communities / UK
Non-random sample, exploratory analysis
2004 Entrepreneurship Review
None
Key findings / key points
QA
(1-3)
Results suggest that 'it is possible to distinguish between those with
2
business-first, family-first, money-first and lifestyle-first aspirations.
Their educational and family background affects entrepreneurs'
aspirations, as does their stage on the family life cycle. Differences in
aspirations are related to the nature of business, the way in which it is
managed, the recruitment of professional managers and
entrepreneurial performance. Our findings highlight the diversity in
aspirations among family business owners and the complexity of the
interaction between ethnicity, culture, class and entrepreneurship.'
2
2004 Entrepreneurship (low wage, informal)
Sociological analysis
None
Discusses how low-wage immigration 'actually proceeds in First World 2 cities. Argues that 'since low-wage immigration is always linked to migration networks, immigrants initially cluster in selected regions, metropolitan areas, and cities. The regional and local clustering of supply-driven immigrants focuses and intensifies their local impact. Regional and metropolitan clustering intensifies immigrants' pressure upon mainstream labour and housing markets, driving down their wages and living conditions. Ultimately, when some standard of intolerance for poverty is breached, the immigrants' substandard housing and employment conditions compel municipal enforcement of health, housing, and working standards, thus shutting down the municipality's employment buffers ... Once these new sites are colonised, the continuing migration repeats the same process of migration saturation ­ buffer expansion ­ buffer saturation ­ dispersal. In this manner, the migration process expands into the entire territory of the destination country, breaking out of its initial encapsulation.'
71
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
31
Coleman 2004 Fiscal impacts,
Review
None
2
and
public services
Rowthorn
(J)
32
Jamal (J)
2005 Entrepreneurship Semi-structured None /
interviews with explorative
Chinese,
Pakistanis and
Bangladeshis in
London and
Cardiff, n = 19 /
UK
33
Chiswick 2005 Entrepreneurship, Review
None
(WP)
innovation,
productivity, fiscal
impacts
34
Constant 2005 Fiscal impacts
and
Zimmerma
n (WP)
Review
None
Finds that 'ethnic entrepreneurs engage in a number of marketing
2
practices that reveal their competency, innovation and networking
abilities to successfully compete in a competitive context ... revealing
their role as bicultural mediators seeking to facilitate negotiations of
multiple identities by their multi-ethnic consumers. The paper
discusses implications for marketers of mainstream brands who are
interested in targeting ethnic minority consumers.'
1
2/ 3
72
Count 35
Author /type Fougere et al (R)
Date 2005
Economic outcome Fiscal impacts
Data / focus Macro modelling with Canadian data
Methodology CGE model, overlapping generations
36
Lewis (J)
2005 Investment /
physical capital,
productivity
US data
37
Parsons
2005 Trade
(WP)
EU-15 countries Gravity model
38
Combes et 2005 Trade
al (J)
Theory
Key findings / key points
QA
(1-3)
Paper finds that 'selecting the same proportion of high-skilled
2
immigrants as in the second half of the 1990s would raise labour
productivity and living standards in the long run. It could also reduce
the expected negative impact of population ageing on growth in real
GDP per-capita by about one-quarter. In addition, raising the
proportion of high-skilled immigrants by 0.25% of the population each
year could reduce by another 50% the anticipated decline in real GDP
growth. However, these gains are conditional upon the recognition of
permanent residents' credentials. Finally, attracting more high skilled
immigrants may significantly reduce the skill premium, which on one
hand lowers earnings inequality between high and low skilled
workers, but on the other hand may reduce incentives for young
adults to invest in human capital.'
Finds that automation and low-skilled migration are substitutes for
1/2
each other.
The results indicate that 'Eastern European immigrants exert a
2
positive influence on both EU-15 imports and exports. It is predicted
that a 10% rise in Eastern European immigration will increase EU-15
imports from these countries by 1.4% and EU-15 exports by 1.2%.
These results indicate that immigrants' demand for native products
outweighs the increase in trade associated with immigrants forming
business-links between European trading partners.'
Information channel: migrants improve investor information about
1
home countries Preference channel: migrant s create demand for
goods produced in the home country.
39
Saxenian 2006 Immigration,
Quali, US Bay Review
1
(B)
entrepreneurship Area
73
Count 40
Author /type Kugler and Rapoport (WP)
Date Economic outcome Data / focus 2006 Investment, trade Theory (sending country)
Methodology None
41
Card (WP) 2007 Consumption and Review, focused None
fiscal impacts
on US cities
Key findings / key points
QA
(1-3)
Main takeaway from the model is that 'a brain gain seems possible, as 1
migration of skilled labour can have a positive impact on the sending
country thanks to remittances, return migration, network
externalities, diasporas and reduced corruption in the country of
origin.'
2
42
Acs and
2007 Entrepreneurship Review
None
2
Szerb (J)
43
Anderson 2007 Entrepreneurship Secondary
Descriptive
Notes that immigrants have started 25% of VC-backed US public
2
and Platzer
analysis of US analysis
companies; immigrants have started 40% of VC-backed tech
(R)
data, non-peer
companies currently trading. Examples include Google, Sun, Yahoo,
reviewed
EBay.
74
Count Author
/type
44
Levie (J)
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
(1-3)
2007 Entrepreneurship Stratified
Pooled and
Paper finds that 'new business activity varies with migrant status and 2
sample from
'case-cohort'
ethnicity. Multivariate analysis suggests that migration increases the
GEM 2003-4
samples, but no odds of engaging in new business activity, that the independent effect
data, n = 38,046 causality checks of ethnicity is marginal, and that being a recent ethnic minority
/ UK
migrant decreases the odds, after controlling for other individual level
factors. At the regional level, a preliminary analysis suggests that gross
migration flow has a higher correlation with new business activity
than other commonly used regional demographic or economic
development measures.'
45
Wadhwa 2007 Entrepreneurship Survey and
Descriptives
The key findings are that killed migrants account for24% of new
2
et al (WP)
interviews, plus only
patent apps in the US, 25% of high-growth high-tech firms, and 12% of
patent analysis,
residents.
US
46
Gordon et 2007 Entrepreneurship, Review and
Mixed methods HIghlights likely wider economic roles of skilled migrants in London
2
al (R)
innovation, trade descriptive stats
economy.
/ UK
75
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
47
Schuetze 2007 Entrepreneurship, Census
Borjas cohort Authors find 'positive and statistically significant growth in the self-
2
and
policy design
microdata on approach. But employment propensities of newly arriving immigrants, over and
Antecol (B)
male self-
no controls for above that of similar natives ... despite very different rates of self-
employment
individual
employment, we find that rates of self-employment catch up to and
and wages for unobservables overtake those of similar natives within 10 to 20 years after arrival ...
immigrants and
we find evidence that, while immigration policy may affect self-
natives, 1981 and 1990 / US, Australia and Canada
employment outcomes at the margin the most substantial determinants are likely other institutional/market structure forces that attract entrepreneurs [i.e. interaction of institutions, market structure and self-selection] ... looking across countries we do indeed
find evidence that suggests that immigration policy has an impact. These impacts were most evident in the Australian results. For example, Australia's relatively rigorous "points" requirements for entry appear to have had the expected effects both in terms of selfemployment business start-up and earnings outcomes.''
48
Saiz (J)
2007 Housing rents
Metro area
IV using shift- Finds that immigration pushes up rents and housing values in US
1
analysis, using share
destination cities. 'An immigration inflow equal to 1% of a city's
c-section and instrument
population is associated with increases in average rents and housing
longitudinal
values of about 1%. The results suggest an economic impact that is an
data, 1983-1997
order of magnitude bigger than that found in labour markets.'
/ US
49
Peri (B)
2007 Innovation (skilled State-level data OLS
migrants)
/ US
Argues that 'migration of human capital could be a viable and
2
effective way of increasing supply of skills in Europe. However the
migration channel in most cases has not worked to improve the skills
of the European labour force. Finally, estimates on a so-called
`dynamic effect' of highly-educated and talented workers on the rate
of scientific and technological innovation is discussed. US states' share
of foreign-born PhDs is positively associated with levels of patenting.'
76
Count 50
Author /type Kugler and Rapoport (J)
Date Economic outcome Data / focus
2007 Investment, trade
Bilateral migration and FDI data for 55 countries, 1990 and 2000 / US
Methodology Diff in diff
Key findings / key points
QA
(1-3)
Results show that 'brain drain and FDI inflows are negatively
1
correlated contemporaneously but that skilled migration is associated
with future increases in FDI inflows. We also find suggestive evidence
of substitutability between current migration and FDI for migrants
with secondary education, and of complementarity between past
migration and FDI for unskilled migrants.'
51
Putnam (J) 2007 Productivity, social Cross-sectional OLS
capital
neighbourhood-
level data / US
Notes that 'ethnic diversity is increasing in most advanced countries,
2
driven mostly by sharp increases in immigration. In the long run
immigration and diversity are likely to have important cultural,
economic, fiscal, and developmental benefits. In the short run,
however, immigration and ethnic diversity tend to reduce social
solidarity and social capital. New evidence from the US suggests that
in ethnically diverse neighbourhoods residents of all races tend to
`hunker down'. Trust (even of one's own race) is lower, altruism and
community cooperation rarer, friends fewer. In the long run, however,
successful immigrant societies have overcome such fragmentation by
creating new, cross-cutting forms of social solidarity and more
encompassing identities.'
77
Count 52
Author /type Zucker and Darby (WP)
Date 2007
Economic outcome Innovation (star scientists)
Data / focus
Methodology Key findings / key points
5401 star scientists, 19812004 [star = most highly cited], US
Descriptives and OLS
Paper follows the careers 1981-2004 of 5401 star scientists listed in ISI HighlyCitedSM as most highly cited by their peers. Finds that 'their number in a US region or a top-25 science and technology (S&T) country significantly increases the probability of firm entry in the S&T field in which they are working. Stars rather than their disembodied discoveries are key for high-tech entry. Stars become more concentrated over time, moving disproportionately from areas with few peers in their discipline to many, except for a countercurrent of some foreign-born American stars returning home. High impact articles and university articles all tend to diffuse. America has 62 percent of the world's stars as residents, primarily because of its research universities which produce them. Migration plays a significant role in some developing countries.'
QA (1-3) 2
53
Frattini
2008 Consumption,
UK RPI and CPI IV with shift-
Finds that 'immigration had significant but quantitatively limited
1
prices
data, 1995-2006 share
effects on prices, and that the effects were different for services and
instrument
tradeable goods. Immigration contributed to reduce price growth of
services in sectors with a high concentration of low-wage workers
such as restaurants, bars, and take-away food through its effects on
labour supply. Conversely there is some evidence that immigration
increased the price of low-value grocery goods via demand side
effects.'
54
Altinay and 2008 Entrepreneurship 227 face-to-face Random
Finds a relationship between fluency in English and business growth in 2
Altinay (J)
structured
sample,
all sectors. Education appears to be an important variable for the
interviews with descriptive
business growth of the firms in the catering and service sectors.
Turkish small analysis and chi- Reliance on co-ethnic market is a key contributor to growth of firms in
business owners sq tests
the retailing sector. Supports linkage between internal and external
in London / UK
environments of entrepreneurship thus providing support for the
"mixed embeddedness" approach to explaining ethnic minority
business growth.
78
Count Author
/type
55
Bagwell (J)
56
Ram and
Jones (J)
Date 2008 2008
Economic outcome Entrepreneurship Entrepreneurship
Data / focus Focus on Vietnamese nail-care sector. Interviews with 10 ownermanagers, 4 others in London Review
Methodology None None
Key findings / key points
QA
(1-3)
Highlights 'the importance of transnational family networks within all
3
aspects of the business and suggest that these links can sometimes
provide a fertile source of new business ideas, but can equally limit
innovation. The presence of innovative and well-educated members
within the entrepreneurs' "strong-tie" network appeared to
encourage more successful business development and diversification.'
2
57
Wadhwa 2008 Entrepreneurship, Surveys and
Random
et al (WP)
innovation
interviews of 2k sampling
startup
founders, 1500
firms in tech
clusters, 800
immigrant and
US founders
58
Saxenian 2008 Entrepreneurship, Case studies / Case study
and Sabel
trade (home
US and Taiwan
(J)
impacts)
Key finding is that 'advanced education in STEM fields (science,
2
technology, engineering and mathematics) is correlated with high
rates of entrepreneurship and innovation among both immigrant and
U.S.-born founder populations.'
Examines 'the case of Taiwan, where first-generation immigrant
2
professionals from U.S. technology industries have collaborated with
their home-country counterparts to develop the context for
entrepreneurial development. The most significant contributions of
these skilled professionals to their home countries are participation in
external search and domestic institutional reform.'
79
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
59
Rowthorn 2008 Fiscal impacts
Review
None
2
(J)
60
Chelleraj 2008 Innovation
et al (J)
US data
None
Finds that 10% in share of foreign grad students is linked to a 4.5%
2
increase in patent applications, 5.1% in patents granted.
61
Kerr (WP) 2008 Innovation
62
Agrawal et 2008 Innovation
al (J)
(knowledge
diffusion)
US patent data, Classification Finds that 'contributions of Chinese and Indian scientists and
1
city-level
using ethnic
engineers to US technology formation increase dramatically in the
analysis, 1975- names
1990s. At the same time, these ethnic inventors became more
2007
database,
spatially concentrated across US cities. The combination of these two
descriptive
factors helps stop and reverse long-term declines in overall inventor
analysis
agglomeration evident in the 1970s and 1980s. The heightened ethnic
agglomeration is particularly evident in industry patents for high-tech
sectors, and similar trends are not found in institutions constrained
from agglomerating (e.g., universities, government).'
USPTO patent Case control
Finds that 'spatial and social proximity both increase the probability
1
and
using patent
of knowledge flows between individuals, but the marginal benefit of
demographic pairs, based on geographic proximity is greater for inventors who are not socially
data for US
Jaffe et al
close ... the marginal benefit of being members of the same technical
MSAs, focus on (1993) and
community of practice is greater in terms of access to knowledge for
effects of Indian Thompson and inventors who are not co-located. Overall, these results imply that
co-ethnicity
Fox-Kean (2005) spatial and social proximity are substitutes in their influence on access
to knowledge. We discuss the implications of these findings in terms
of the optimal dispersion of socially connected inventors.'
80
Count Author
/type
63
Kerr(J)
64
Llull
Date Economic outcome Data / focus
Methodology
2008 Innovation, entrepreneurship, productivity 2008 Productivity
USPTO patent data, ethnic names database, country*sector manufacturing output data 1985-97 Cross-country panel, 24 countries, 19602005
IV using HB1 quotas Panel data, IV from migrantpush gravity model
Key findings / key points
QA
(1-3)
Explores the role of U.S. ethnic scientific and entrepreneurial
1
communities for international technology transfer to their home
countries. 'International patent citations confirm knowledge diffuses
through ethnic networks, and manufacturing output in foreign
countries increases with an elasticity of 0.1­0.3 to stronger scientific integration with the U.S. frontier. Ethnic technology transfers are
particularly strong in high-tech industries and among Chinese economies.'
Provides 'cross-country macro evidence on the effect of immigration
1
on productivity. Results suggest a negative impact of immigration on productivity that is partially offset by a positive effect on participation and employment.'
65
Paserman 2008 Productivity (high Firm-level data Cross-sectional, Finds 'no correlation between immigrant concentration and
2
(WP)
skill migrants)
for Israeli MFs, pooled OLS and productivity at the firm level in cross-sectional and pooled OLS
1990-1999
first differences regressions. First-differences estimates, which control for fixed
unobserved differences between firms, reveal, if anything, a negative
correlation between the change in output per worker and the change
in the immigrant share. A more in-depth analysis reveals that the
immigrant share was strongly negatively correlated with output and
productivity in low-tech industries. In high-technology industries, the
results tend to point to a positive relationship, hinting at
complementarities between technology and the skilled immigrant
workforce.'
66
Ottaviano 2006 Productivity
US metro areas, Panel data, IV The diversity of the migrant population leads to significant increase in 2
and Peri (J)
(wages) // housing 1970-1990
from shift-share native wages and in the rental price of housing. As people and firms
rents
instrument
are mobile across cities in the long run, this implies thatthese
correlations are consistent with a net positive effect of cultural
diversity on the productivity of natives.
81
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
67
Grossman 2008 Public goods
National
3SLS structural Paper shows that 'international integration of the market for skilled
1
n and
investment (host migration and equation model labor aggravates between-country income inequality by harming
Stadelman
and source
income data, 77
those which are source economies to begin with while benefiting host
n (WP)
countries)
countries, 1990
economies. When brain drain increases in source economies, public
and 2000
infrastructure investment is optimally adjusted downward, whereas
host economies increase it. Evidence from 77 countries well supports
our theoretical hypotheses.'
68
Lancee
2008 Social capital
and
Dronkers
Netherlands local level data, n = 5757
Multi-level regression
69
McEvoy
2009 Entrepreneurship 5x minority
Correlations
and Hafeez
ethnic groups in
(J)
England and
Wales
Paper finds that 'both for immigrants and native residents 1)
2
neighborhoods' ethnic diversity reduces individual trust in
neighborhoods; 2) those with neighbors of a different ethnicity have
less trust in neighborhoods and neighbors 3) a substantial part of the
effect of neighborhoods' ethnic diversity on individual trust can be
explained by the higher propensity of having neighbors of a different
ethnicity. We conclude that ethnic diversity can have a negative effect
on individual trust. However, we do not find these negative effects of
neighborhoods' or neighbors ethnic diversity.'
Authors find that 'self-employment in these groups is inversely related 2 to minority share in the regional economically active population. The sectoral diversity of minority enterprises is positively related to their share in the regional economically active population.'
82
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
70
Baycan-
2009 Entrepreneurship Review from
None
2
Levent and
Denmark,
Nijkamp (J)
Germany,
Greece, Italy,
the
Netherlands,
Portugal,
Sweden, and
the UK
71
Georgarak 2009 Entrepreneurship Firm-level
Hazard model Authors find a 'lower survival probability in entrepreneurship for
1/ 2
os and
(business survival) panel, n = 4547, with robustness Mexican and other Hispanic immigrants, which does not carry on to
Tatsirimos
1996-2000 / US checks
their U.S.-born descendants. We also find that these two immigrant
(J)
groups tend to enter entrepreneurship from unemployment or
inactivity and they are more likely to exit towards employment in the
wage sector, suggesting that entrepreneurship represents for them an
intermediate step from non-employment to paid employment.'
72
Drori et al 2009 Entrepreneurship Review
None
2
(B)
(transnational)
73
Kitching et 2009 Entrepreneurship, Case studies of None
al (J)
trade
4 BME-owned in
firms London,
semi-structured
interviews
Under certain conditions, diaspora-based networks enable higher
2/3
levels of business competitiveness by facilitating a) access to
resources b) market access. Exploiting these depends on 1)
capabilities and motives 2) diaspora structures (size, location, sectors)
and 3) what diasporas make available to owners. Restrictions from
diasporas may constrain business performance. 'Diaspora-based
networks ... do not negate the importance of class resources such as
property, education and skills.'
83
Count 74
Author /type Gonzalez and Ortega (WP)
Date 2009
Economic outcome House prices, construction activity
Data / focus Spanish province data, 1998-2008
Methodology Shift-share IV
Key findings / key points
QA
(1-3)
Paper shows that 'between 1998 and 2008, the average Spanish
1
province received an immigrant inflow equal to 17% of the initial
working-age population. We estimate that this inflow increased house
prices by about 52% and is responsible for 37% of the total
construction of new housing units during the period. These figures
imply that immigration can account for roughly one third of the
housing boom, both in terms of prices and new construction.'
75
Markusen 2009 Investment,
and
productivity
Trofimenk
o (J)
Plant-level data Fixed effects, Foreign experts may train domestic workers who work with them.
1
for Colombia
matching based Paper suggests that workers learn from experts (the effect of using an
on nearest
expert is not strictly temporary) and that this learning is embodied in
neighbours
the workers rather than in the firm. 'These experts have substantial
and persistent positive effects (though not always immediate) on the
wages of domestic workers and on the value added per worker.'
76
Hart (WP) 2010 Business formation Survey [n =
OLS analysis,
Paper uses 'original quantitative and qualitative data on the U.S. high- 2
and performance 24,000] and
'exploratory'. tech sector to examine empirically hypotheses that flow from the
interview data NB positive
theoretical exploration. We find that homophily drives team
[n = 1300 firms] selection in
formation and that nationality diversity in founding teams has a
with high-tech both samples modest impact on firm performance.'.
firms, US.
84
Count 77
Author /type Crick and Chaudry (J)
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
(1-3)
2010 Entrepreneurship Postal survey (n Descriptives. NB Paper shows that 'a number of differences exist between two
2
= 98) and semi- sample = non- identified groups of entrepreneurs. First, internationally oriented
structured
random
Asian entrepreneurs were those of an Asian origin whose primary
interviews
manufacturing operations were based in the UK but who were
(n=8), UK-based
involved in overseas sales. Transnational entrepreneurs in comparison
Asian
... leveraged resources in their country of origin in order to serve
entrepreneurs
overseas markets ... findings indicate that transnational entrepreneurs
are able to utilize the advantages of operating in two socially
embedded environments to aid competitiveness in a way that their
one-country counterparts are not.'
78
Honig et al 2010 Entrepreneurship Review
None
1
(B)
79
Wang (J) 2010 Entrepreneurship US Census
Multilevel
microdata, 2000 regression
Authors find that 'whites and blacks are more likely to own businesses 2 in newer immigration gateways, while Hispanics and Asians are more likely to do so in the more established gateways. In addition, differences as to the interaction effects of gender and regional labor markets are the most significant for blacks and Asians.'
80
Clark and 2010 Entrepreneurship 1991 and 2001 Descriptive
Authors find that 'rates of self-employment have fallen for Indians and 2
Drinkwater
(self-employment) Census SARs
analysis only. the Chinese and argue that this is due to increased opportunities in
(J)
data + QLFS, 5x No skillgroups paid employment, partly brought about by demographic change.
main minority analysis
However, entrepreneurs from these groups still work the longest
ethnic groups,
hours. In contrast, self-employment rates have risen for Black
UK
Caribbean males in recent years and remain high for Pakistani males.
We also document how the proportion of the self-employed with
employees has varied over time and discuss trends in the extent to
which the self-employment of different ethnic groups is concentrated
within particular sectors.'
85
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
81
Huber et al 2010 Entrepreneurship, Review
None
1
(B)
innovation,
productivity
82
Dustmann 2010 Fiscal impacts of
Individual level
et al (J)
A8 migrants
data UK
Main findings are that 'A8 immigrants who arrived after EU
2
enlargement in 2004 and who have at least one year of residence, and
are therefore legally eligible to claim benefits, are 59 per cent less
likely than natives to receive state benefits or tax credits and 57 per
cent less likely to live in social housing. Furthermore, even if A8
immigrants had the same demographic characteristics as natives, they
would still be 13 per cent less likely to receive benefits and 29 per
cent less likely to live in social housing. ... In each fiscal year since
enlargement in 2004, irrespective of the way that the net fiscal
contribution is defined, A8 immigrants made a positive contribution to
the public finances despite the fact that the UK has been running a
budget deficit over the last few years. This is because they have a
higher labour force participation rate, pay proportionately more in
indirect taxes and make much less use of benefits and public services.'
83
Niebuhr (J) 2010 Innovation
84
Lee and
2010 Innovation
Nathan (J)
R&D data for 95 Cross-section The paper finds that 'differences in knowledge and capabilities of
2
German NUTS3
workers from diverse cultural backgrounds enhance performance of
regions
regional R&D sectors. As regards innovation, the benefits of diversity seem to outweigh the costs caused, for example, by communication
barriers.'
Survey data for Cross-sectional The authors find significant positive links between workforce and
2
2300 firms, London
ownership diversity, and product and process innovation. These provide some support for claims that London's cultural diversity is a
source of economic strength.
86
Count Author
/type
85
Kerr (J)
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
(1-3)
2010 Innovation and
Patenting
Cross-sectional Finds that 'patenting growth is significantly higher in cities and
1
'breakthrough
growth in US
growth
technologies where breakthrough inventions occur after 1984 relative
inventions'
metro areas and estimations,
to peer locations that do not experience breakthrough inventions.
technology
reduced-form This growth differential depends on the mobility of the technology
fields, 1990-
estimator using labor force ... Spatial adjustments are faster for technologies that
2004
H1B changes
depend heavily on immigrant inventors.'
86
Hunt and 2010 Innovation and
Gauthier-
skilled migrants
Loiselle (J)
Individual and Panel and shift- Finds that 'immigrant contribution to patenting is entirely explained
1
state-level data share
by selection into science and engineering - not ability. (vs e.g. Stephan
1940-2000, US instrument
and Levin, Chelleraj et al). We also show that a 1 percentage point
increase in immigrant college graduates' population share increases
patents per capita by 9-18 percent. Our instrument for the change in
the skilled immigrant share is based on the 1940 distribution across
states of immigrants from various source regions and the subsequent
national increase in skilled immigration from these regions.'
87
Kerr and 2010 Innovation and
Lincoln (J)
skilled migrants
Ethnic inventors Panel data,
Authors show that 'h H-1B admissions increase immigrant science and 1
database and instrument
engineering (SE) employment and patenting by inventors with Indian
patenting by
based on H1B and Chinese names in cities and firms dependent upon the program
Indian /
visa allocation. relative to their peers. Most specifications find limited effects for
Chinese-origin NB assume
native SE employment or patenting. We are able to rule out
inventors
ethnic inventors displacement effects, and small crowding-in effects may exist. Total SE
are largely
employment and invention increases with higher admissions primarily
migrants
through direct contributions of immigrants.'
87
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
88
Leblang (J) 2010 Investment
Dyadic data for Cross-sectional Author suggests that 'diaspora networks--connections between
2
portfolio and
migrants residing in investing countries and their home country--
FDI, <= 56
influence global investment by reducing transaction and information
source and 154
costs. This hypothesis is tested using dyadic cross-sectional data for
destination
both portfolio and FDI. The findings indicate that even after
countries, 2002
controlling for a multitude of factors, disapora networks have both a
substantively significant effect and a statistically significant effect on
cross-border investment.'
89
Docquier 2010 Investment / FDI on FDI and migrant Cross-section
Finds that 'in both cross-sectional and panel frameworks, we find
1
and
sending countries stocks, 1990-
and dynamic
evidence of strong network externalities, mainly associated with the
Lodigliani
2000 / 114
panel settings, skilled diaspora. The recent literature on the brain drain reveals the
(J)
countries.
decomposition human capital response to skilled migration is likely to be positive in
Aggregate FDI by migrant
large countries characterized by low rates of migration. This paper
stocks not
skillgroup.
brings an additional channel through which large countries may
bilateral data
benefit from skilled migration: having a large educated diaspora
abroad stimulates physical capital accumulation. On the other hand,
small countries are less likely to benefit from skilled migration.'
90
Nielsen (J) 2010 Market entry,
165 Swiss firms, Pooled cross- Results suggest that 'TMT internationalization leads to subsequent
2
profitability (top 2002-4
section with
foreign market entries, which in turn are positively related to firm
management teams)
factor analysis for TMT
performance.' Latter ismeasured by index of profitability.
composition
91
Azanert (J) 2010 Productivity
Theory
None
Model suggests that 'a highly skilled immigration can be growth
1
enhancing if the positive contribution of the imported brains to the host economy's human capital stock outweighs the immigration-
induced adverse effect on educational incentives for natives, or growth depleting if the latter effect dominates.'
88
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
92
Parotta et 2010 Productivity (TFP) Employer-
Structural
Authors show that 'labor diversity in skills/education significantly
1
al (WP)
employee data, equation
enhances firm performance as measured by firm TFP. Conversely,
Danish firms, modelling of
diversity in demographics and ethnicity brings mixed results ­ both
1995-2005
TFP, IV firm
dimensions of workforce diversity have either no or negative effects
diversity using on firm TFP. However, we find that ethnic diversity is valuable for
commuting area firms operating in industries characterized by above-average trade
demographics openness, giving support to the hypothesis that an ethnically diverse
workforce provides information and access to global markets.'
93
Peri (2010) 2010 Productivity,
(R)
investment,
employment
US states, 1960- Panel data
Argues that 'immigrants expand the economy's productive capacity by 2
2008
analysis, no IV stimulating investment and promoting specialization. This produces
efficiency gains and boosts income per worker. At the same time,
evidence is scant that immigrants diminish the employment
opportunities of U.S.-born workers.' Note correlations, not causal
effects.
94
Peri and
2010 Trade
50 Spanish
Bilateral trade Finds that 'immigrants significantly increase exports and that the
1
Requena
provinces and model for
effect is almost entirely due to an increase in the extensive margin.
(J)
77 trading
individual
Consistent with the idea that immigrants reduce the fixed cost of
countries, 1995- transactions, exporting, we find stronger effects for differentiated goods and for
2008
transaction
countries culturally distant from Spain.'
value, and
immigration.
Shift-share IV
95
Smallbone 2010 Urban economic
Review
None
2 /3
et al (J)
development
89
Count Author
/type
96
Lee (J)
Date Economic outcome Data / focus
Methodology
2011 Employment
53 English cities, OLS 1981-2001
97
Jones et al 2011 Entrepeneurship
British Indian
Qualitative
(J)
community
Key findings / key points
QA
(1-3)
Finds that 'cities with a high proportion of their populations born
2
abroad in 1981 grew faster in the subsequent 10 years. Neither
diversity by country of birth nor ethnic diversity is significant in the
period 1991--2001. However, when variables accounting for both are
included together, it appears that cities with a large number of
migrants saw higher employment growth in the 1990s, but that
ethnically diverse cities were less successful.'
Argues that 'the Indian community in the UK is exemplifying an `ethnic 2 entrepreneurial transition'. Impressive educational credentials, an increasing presence in the professions and diversification into new and emerging sectors are gradually changing the profile of Indian entrepreneurship.'
98
Guerra and 2011 Entrepreneurship 2490 Swiss
Spatial
Finds a 'significant (positive) effect of spatial network effects from
1/2
Patueli
municipalities autoregressive existing to new ethnic entrepreneurs, which are characterized by a
(WP)
model
quick distance decay, suggesting spatial spillovers at the household
and social network level. Additionally, we show that local conditions
and immigrant pool characteristics differ, with respect to self-
employment choices, when examining urban and rural contexts.'
99
Hart and 2011 Entrepreneurship, Sample of 'high- Descriptive stats Finds that 'about 16% of the companies in the sample number at least 2
Acs (J)
employment,
impact' tech
and OLS
one immigrant entrepreneur among their founding teams, while
R&D/patenting
firms (n = 1300)
about 77% of the immigrant entrepreneurs are U.S. citizens.
and founders (n
Regressions compare high-impact, high-tech firms that count at least
= 2000), 2002-6,
one immigrant in their founding teams with those that were founded
US
by native-born entrepreneurs. It is found that the two groups of firms
are similar with respect to economic and technological performance.
Immigrant-founded firms are more likely to report that they have a
strategic relationship with a foreign firm.'
90
Count Author /type 100 Sa (WP) 101 Saiz (B)
Date Economic outcome Data / focus
2011 House prices
English LA and regions data
Methodology Panel and IV
Key findings / key points
QA
(1-3)
Finds that 'immigration has a negative effect on house prices and
2
presents evidence that this negative effect is due to the mobility
response of the native population. Natives respond to immigration by
moving to different areas and those who leave are at the top of the
wage distribution. This generates a negative income effect on housing
demand and pushes down house prices. The negative effect of
immigration on house prices is driven by local areas where immigrants
have lower education.'
2011 House prices and USA metros and Panel and shift- Finds that 'cities that received immigrants experienced faster housing 1
rents
neighbourhoods share IV
price and rent appreciation during the last two decades of the 20th
, focus on
century. Hispanic-dense metropolitan areas have more expensive
Hispanic
housing. Part of the price differential is due to the growth in the
immigration
Hispanic population, and we derive a statistical causal link between
Hispanic growth and average housing price growth. However, within
metropolitan areas it is precisely those neighborhoods with increasing
Hispanic share where relatively slower housing price and rent
appreciation took place. The facts are consistent with immigrant and
Hispanic population growth generally driving up the demand for living
in a city, but with increasing ethnic segregation within the city.'
102 Saiz and Wachter (J)
2011 House prices and rents
US metros
Panel and shift- 'Finds a causal impact from growing immigrant density to native flight 1
share IV
and relatively slower housing value appreciation. Further evidence
indicates that these results are driven more by the demand for
residential segregation based on ethnicity and education than by
foreignness per se.'
91
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
103 Whitehead 2011 Housing prices,
Tier 1 and Tier 2 Descriptives and Finds that 'skilled non- EU migrants in the UK mostly live in privately
1
et al (R)
skilled migrants
populations
modelling
rented accommodation and have affected house prices by less than 1
plus LFS, APS,
per cent over 5 years.'
EHS, UK
104 Algan et al 2011 Housing provision / Ethnic and
Exogeneity of Differentiating among three channels of public goods provision, the
1
(WP)
safety
religious
public housing paper finds that 'heterogeneity in the housing block leads to low
diversity data, allocations to levels of sanctions for anti-Social Behavior and low levels of collective
social
deal with
action to improve housing conditions, but no losses in public safety.'
interactions and selection issues
crime, housing
block level,
France
105 Parotta et 2011 Innovation
Employer-
Panel, pre-
Finds that 'skill and ethnic diversity plays an important role in
1
al (WP)
employee data, sample info for propelling firm's innovation outcomes. Conversely, the effect of
Denmark
firms, IV based demographic diversity typically vanishes once detailed firm-specific
on commuting characteristics are included as control variables.'
area
demographics
106 Mare et al 2011 Innovation
Firm-level and Panel and IV
Main finding is 'a positive relationship between local workforce
1/2
(WP)
census data,
with 5-year lags characteristics and average innovation outcomes in labour market
1999-2008, New
areas, but this is accounted for by variation in firm characteristics such
Zealand
as firm size, industry, and research and development expenditure.
Controlling for these influences, we find no systematic evidence of an
independent link between local workforce characteristics and
innovation.'
107 Ozgen et al 2011 Innovation (WP)
Dutch
Panel with shift- Finds that 'excluding firms in the hospitality industry and other
1
employer-
share /
industries that employ low-skilled migrants, firms in which foreigners
employee data, amenities-based account for a relatively large share of employment are somewhat less
4582 firms
IVs
innovative. However, there is strong evidence that firms that employ a
more diverse foreign workforce are more innovative, particularly in
terms of product innovations.'
92
Count 108
Author /type Ostergaard et al (J)
109 Ozgen et al (WP)
110 Nathan (WP)
Date 2011 2011 2011
Economic outcome Innovation Innovation (incl. skilled migrants) Innovation and skilled migrants
Data / focus Employeremployee dataset, diversity in terms of gender/ age / education/ ethnicity Patents and demographic data for 170 EU NUTS2 regions, 1991-2001 EPO patent data, ethnic inventor name classification, 1993-2004, UK
Methodology Cross-section Panel with controls for spatial autoregression, IV based on density of McDonalds restaurants to population Fixed effects based on historic information, lags IV
Key findings / key points
QA
(1-3)
Shows a 'positive relation between diversity in education and gender
2
on the likelihood of introducing an innovation. Furthermore, we find a
negative effect of age diversity and no significant effect of ethnicity on
the firm's likelihood to innovate. Positive relationship between an
open culture towards diversity and innovative performance. We find
no support of any curvilinear relation between diversity and
innovation.'
Finds that 'an increase in patent applications in a region is associated
1
with (i) net immigration; (ii) the share of foreigners in the population
of the region; (iii) the average skill level of the immigrants; and (iv) the
cultural diversity of the immigrants. The magnitude of these effects
varies between types of patents.'
Finds 'small positive effects of South Asian and Southern European co- 1 ethnic group membership on individual patenting. The overall diversity of inventor communities also helps raise individual inventors' productivity. I find no hard evidence that ethnic inventors crowd out patenting by majority groups.'
111 Gagliardi 2011 Innovation and
(WP)
skilled migrants
LFS and CIS data Area-level panel Shows that 'human capital externalities coming from the migration
1/2
for UK TTWAS, with shift-share behaviour of skilled individuals are a significant determinant of
2002-4, 2005-7 IV
innovation in British local areas.' No amplifying effect of urban areas
93
Count Author /type 112 Hunt (J) 113 Foad (J)
Date Economic outcome Data / focus
Methodology
2011 Innovation, entrepreneurship 2011 Investment
2003 National Survey of College Graduates, distinctions by immigrant visa type Bilateral migration and equity holdings data for 28 countries and 41 partners, 1997-2004
Cross-section Identification using gravity migration model IV
Key findings / key points
QA
(1-3)
Finds that 'immigrants who entered on a student/trainee visa or a
1
temporary work visa have a large advantage over natives in wages,
patenting, and publishing. Much of the advantage is explained by
immigrants' higher education and field of study. Immigrants who
entered with legal permanent residence do not outperform natives
for any of the outcomes considered. Immigrants are more likely to
start companies than similar natives.'
Shows that 'inward migration is positively correlated with increased
1
foreign equity positions and reduced home bias. Looking across
income groups, outward migration reduces home bias for relatively
rich countries, but may actually increase home bias when migration
occurs to or from a developing country. These results suggest that
immigration generates a positive externality of increased information
flows for developed countries, but not for developing nations. The
effects of immigration on investment are strongest within the Euro-
Zone, suggesting that this positive externality of immigration is largest
when barriers to portfolio diversification (such as currency risk) are
lowest.'
114 Foley and 2011 Investment / FDI Patent data,
Linear
Kerr (WP)
and international affiliate data for probability
firm organisation 641 US MNEs in models with
45 countries, fixed effects
national FDI
surveys
between 1982-
2004
Shows that 'increases in the share of a firm's innovation performed by 1 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.'
94
Count 115
Author /type Javorcik et al (J)
Date Economic outcome Data / focus
Methodology
2011
Investment / FDI and skilled migrants
US migrant shares, FDI in origin countries, 1990 and 2000
OLS and IV, multiple instruments
Key findings / key points
QA
(1-3)
Tests 'suggest that US FDI abroad is positively correlated with the
1
presence of migrants from the host country. The data further indicate
that the relationship between FDI and migration is stronger for
migrants with tertiary education.'
116 Lewis (J)
2011 Investment / physical capital
117 Brunow
2011 Productivity
and Blien
(WP)
Manufacturing Panel and
Paper shows that US factories' investments in automation 'substituted 1
and MF tech
differences
for the least-skilled workers and complemented middle-skilled
and
estimation, skill- workers at equipment and fabricated metal plants. Specifically, it
immigration
based shift-
exploits the fact that some metropolitan areas experienced faster
data, 143 US
share IV
growth in the relative supply of less-skilled labor in the 1980s and
metro areas,
1990s due to an immigration wave and the tendency of immigrants to
1988-1993
regionally cluster. Plants in these areas adopted significantly less
machinery per unit output.'
Employer-
'Turned around' Finds that firms' employment 'is lower when the degree of diversity is 1
employee
NEG model with higher, regarding the revenue of an individual establishment as given.
dataset for 215 lags as
From this result it can be derived under the conditions of monopolistic
industries, 16 instruments
competition (implying elastic product demand) that the establishment
years, Germany
is able to occupy a relatively large part of the market. Finally this
implies relatively high labour demand.'
118 Mare and 2011 Productivity Fabling (WP)
Firm-level and Panel and IV
Suggests that 'high-skilled local workforce benefits firms in high-skilled 1/ 2
census data,
with 5-year lags and high-research and development industries, and small firms. The
1999-2008, New
benefits of local population density are strongest for firms in dense
Zealand
areas, and for small and new firms. Firms providing local services are
more productive in areas with high shares of migrants and new
entrants, consistent with local demand factors.'
95
Count 119
Author /type Nathan (WP)
Date Economic outcome Data / focus
2011 Productivity / wages, house prices
Panel of urban TTWAs 19942008, UK
Methodology Key findings / key points
QA
(1-3)
Panel and shift- Finds 'small positive effects of migrants on high-skill native wages,
2
share IV
negative effects on medium/low-skill employment, no effect on house
prices. Long-term industrial decline and casualisation of entry-level
jobs help explain the employment findings.'
120 Malchow- 2011 Productivity,
Employer-
Moeller et
exports and high- employee
al (WP)
skill migrants
datasets,
Denmark
Diff-in-diff
Results show that 'firms that hire foreign experts ­ defined as
1
employees eligible for reduced taxation under the Danish "Tax
scheme for foreign researchers and key employees" ­ both become
more productive (pay higher wages) and increase their exports of
goods and services.'
121 Coen-
2011 Public goods /
School spending Quantitative
Finds that 'education spending per student in California would have
2
Pirani (J)
school spending
data 1970-2000, model of school been 24% higher in the year 2000 if U.S. immigration had been
California
choice and
restricted to its 1970 level.'
voting over
public
education
122 Maheauta 2011 Entrepreneurship Australia
Policy shock
Paper looks at the impact of a change in Australia's immigration
1
u et al
policy, introduced in the mid-1990s, on migrants' probability of
(WP)
becoming entrepreneurs. 'The policy change consists of stricter entry
requirements and restrictions to welfare entitlements. The results
indicate that those who entered under more stringent conditions - the
second cohort - have a higher probability to become self-employed,
than those in the first cohort. We also find significant time and region
effects. Contrary to some existing evidence, time spent in Australia
positively affects the probability to become self-employed. We discuss
the intuitions for the results and their policy implications.'
96
Count 123
Author /type Gnec et al (WP)
Date Economic outcome Data / focus
2011 Trade
48 studies, 300 obs
Methodology Meta-analysis
Key findings / key points
QA
(1-3)
The results show that 'immigration complements rather than
1
substitutes for trade flows between host and origin countries.
Correcting for heterogeneity and publication bias, an increase in the
number of immigrants by 10 percent may be expected to increase the
volume of trade on average by about 1.5 percent. However, the impact is lower for trade in homogeneous goods. Over time, the
growing stock of immigrants decreases the elasticities. The estimates are affected by the choice of some covariates, the nature of the data (cross-section or panel) and the estimation technique. Elasticities vary between countries in ways that cannot be fully explained by study
characteristics; trade restrictions and immigration policies matter for the impact of immigration on trade. The migrant elasticity of imports is larger than that of exports in about half the countries considered, but the publication bias and heterogeneity-corrected elasticity is slightly larger for exports than for imports.'
124 Beaverstoc 2012 Cluster
k and Hall
competitiveness
(J)
ONS Long-Term International Migration data and fieldworkbased studies of banking, professional services, Business Education
Quali
Argues that 'the City's competitiveness is significantly dependent on
2
the functioning of its global labour market, of which a key factor is the
immigration of European Economic Area (EEA) and non-EEA talent,
and that a central determinant of the City's position as a leading
international financial centre based around a highly competitive
global labour pool will be UK immigration policy.'
97
Count 125
Author /type Wang and Altinay (J)
Date Economic outcome Data / focus
2012 Entrepreneurship
Structured interviews with Chinese and Turkish-owned SMEs, n = 258
Methodology Quali
126 Fairlie et al 2012 Entrepreneurship Census data
OLS
(B)
(Indian)
from US, UK,
Canada
Key findings / key points
QA
(1-3)
Shows that 'family and co-ethnic advice and labour do not have a
2
significant impact on firms' entrepreneurial orientation (EO). Instead,
both access to co-ethnic products and access to co-ethnic suppliers of
utilities and facilities have a significant impact on firms'
entrepreneurial outcomes, which in turn has a significant positive effect on employment growth. Moreover, Chinese-owned minority
ethnic small business demonstrate a higher level of EO and pursue different paths to growth (that is, they are more likely to grow through acquiring more business premises) compared with Turkishowned firms.'
Results suggest that 'in the United States Indian entrepreneurs have
2
average business income that is substantially higher than the national
average and is higher than any other immigrant group. High levels of
education among Indian immigrants in the United States are
responsible for nearly half of the higher level of entrepreneurial earnings while industry differences explain an additional 10 percent. In Canada, Indian entrepreneurs have average earnings slightly below the national average but they are more likely to hire employees, as are their counterparts in the United States and United Kingdom. The Indian educational advantage is smaller in Canada and the United Kingdom contributing less to their entrepreneurial success.'
127 Marino et 2012 Entrepreneurship Employer-
Panel with shift- Finds 'evidence that workforce educational diversity promotes
1/ 2
al (J)
(moves to self-
employee data, share IV based entrepreneurial behaviour of employees as well as the formation of
employment)
patents data for on historic
new firms, whereas diversity in demographics [age, gender] hinders
Danish firms
commuting area transitions to self-employment. Ethnic diversity [language-based]
1980-2002.
DIV
favours entrepreneurship in financial and business services.'
2.5m
individuals, 23k
departure firms
98
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
128 Wabha
2012 Entrepreneurship Egyptian data Recursive
Finds that 'an overseas returnee is more likely to become an
1
and Zenou
(return migrants)
bivariate probit entrepreneur than a non-migrant. Although migrants may lose their
(J)
model
social capital, they accumulate savings and experience overseas that
increase their chances of becoming entrepreneurs.'
129 Docquier 2012 Entrepreneurship, Review
None / review
1
and
innovation, FDI
Rapoport
(J)
130 Duleep et 2012 Entrepreneurship, US industries Theory and
al (WP)
investment (skilled and labour
calibration
migrants)
force 2003-2008
Argues that 'immigrants facilitate innovation, entrepreneurship by
2
being willing and able to invest in new skills: as immigrants face a
lower opportunity cost of investing in new skills or methods, this
"transfer" of source-specific skills to the U.S. may lead immigrants to
be more flexible in their human capital investments than
observationally equivalent natives. Areas with large numbers of
immigrants (even if they are not self-employed) may prove to be areas
in which entrepreneurship and innovation are easier to accomplish.
Empirical evidence finds positive links from skilled migrants to job
creation, business entry and immigration.'
99
Count 131
Author /type Borjas and Doran (WP)
Date Economic outcome Data / focus
Methodology
2012 Innovation
Impact of exSoviet mathematicians on US maths community
Quasiexperiment
Key findings / key points
QA
(1-3)
Finds 'substantial cognitive mobility in response to the influx, with
1
American mathematicians moving away from, rather than moving to,
fields that likely received large numbers of Soviet йmigrйs. It appears
that diminishing returns in specific research areas, rather than
beneficial human capital spillovers, dominated the cognitive mobility
decisions of pre-existing knowledge producers.'
132 Stuen et al 2012 Innovation (J)
133 Scellato et 2012 Innovation
al (WP)
(knowledge
diffusion)
PHD students in Panel using
Shows that 'both US and international students contribute
1
2,300 American macro and
significantly to the production of knowledge at scientific laboratories,
science and
policy shocks in and their contributions are statistically comparable, consistent with an
engineering
source
optimising department. A theoretical model of scholarships helps us
departments countries to
to infer the productivity effects of student quality. Visa restrictions
from 1973 to deal with
limiting entry of high-quality students are found to be particularly
1998.
positive
costly for academic innovation.'
selection
GlobSci author Associations
Argues that 'migration plays an important role in the formation of
2
surveys, 16
only, no causal international networks. Approximately 40 percent of the foreign-born
countries, four effects
researchers report having kept research links with colleagues in their
science fields
country of origin. Non-mobile researchers are less likely to collaborate
with someone outside their country than are either the foreign born
or returnees. When the non-mobile collaborate, their networks span
fewer countries. Econometric results are consistent with the
hypothesis that internationally mobile researchers contribute
significantly to extending the international scope and quality of the
research network in destination countries at no detriment to the
quality of the research performed. Results also suggest that the
"foreign premium" on collaboration propensity is driven in large part
by mobile researchers who either trained or worked outside the
destination country where they were surveyed in 2011. With but one
exception, the mobility findings persist when we estimate models
separately for the US, Europe, and other countries.'
100
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
134 Lewis (WP) 2012 Innovation,
Theory / review none
1
investment (K)
135 Harvey (J) 2012 Innovation, investments
Survey of UK expats in Vancouver, n=64, 2008-9
Small scale survey
'Finds that 'the vast majority of respondents are not investing in or
3
intending to return to their home country, which indicates that they
contributing to brain circulation in a limited extent.'
136 Di Simone 2012 Investment / FDI advanced
Gravity model Explores a possible "diaspora externality" from migrant networks.
1
and
(source countries) European Union
'The evidence points to a significant correlation between the volume
Manchin
countries
of EU15's activities in NMS and the total stock of NMS's own-migrants
(J)
(EU15) and New
in the EU15 economies.'
Member States
(NMS) 1995­
2007
137 Pandya
2012 Investment / VC
Cross-border Gravity model, Argues that 'cultural ties between countries, especially the rise of
2
and
venture flows, SUR with
high-skilled migration facilitate an international market for venture
Leblang
1980-2009, 160 negative
capital. Migrants bridge information gaps across countries by
(WP)
countries
binomial. No
supplying implicit information needed to select foreign deals, and by
apparent
advising entrepreneurs on the optimal business strategy for the local
causality
market. We find that US VC firms invest more frequently in countries
checking apart that have large populations of skilled migrants residing in the US.
from lags
Recipient countries' political institutions have limited influence over
the volume of venture capital deals.'
101
Count Author
Date Economic outcome Data / focus
Methodology Key findings / key points
QA
/type
(1-3)
138 Gianetti et 2012 Productivity
Firm-level data, Quasi-
Studies 'the impact of directors with foreign experience on firms in
1
al (WP)
China
experiment
emerging markets. We document that hiring directors with foreign
based on policy experience results in higher firm valuation, productivity, and
shocks
profitability. Furthermore, corporate governance improves and firms
are more likely to make international acquisitions, to export, and to
raise funds internationally. The transfer of knowledge to emerging
markets occurs not only through foreign investment, but also through
labor flows and, in particular, return migration.'
139 Kangasnie 2012 Productivity mi et al (J)
UK, Spain 19922005
Growth accounting model, estimated production function with GMM
140 Trax et al 2012 Productivity (firm- Plant-level data GMM
(WP)
level TFP)
for German
firms 1998-2008
Finds that 'migration has made a negative contribution to labour
1
productivity growth in Spain and a negative but negligible contribution
in the UK. This difference is driven by a positive impact from migrant
labour quality in the UK. Labour productivity growth has a neutral
contribution from migrant labour in construction and personal
services in the UK, whilst in every case in Spain the effect is negative.
Using an econometric approach to production function estimation we
observe a positive long term effect on total factor productivity from
migrant workers in the UK and a negative effect in Spain. Our findings
suggest that either the UK is better at assimilating migrants or is more
selective in terms of who is permitted to migrate.'
Finds that 'a larger share of foreign workers ­ either in the
1
establishment or in the region ­ does not affect productivity.
However, there are strong spillovers associated with the degree of
cultural heterogeneity. The aggregate level is, quantitatively, at least
as important as the workforce composition inside the establishment.
Diversity thus seems to induce externalities beyond the boundaries of
a single firm; it improves local business environments.'
141 Hanson
2012 Productivity,
Review
None
2
competitiveness,
skilled migration
102
Count Author /type 142 Peri (J)
Date Economic outcome Data / focus
2012 Productivity, employment
US states,
Methodology Key findings / key points
QA
(1-3)
State-level
Finds 'no evidence that immigrants crowded out employment. At the
1
panel with shift- same time, we find that immigration had a strong, positive association
share and
with total factor productivity and a negative association with the high
distance IVs
skill bias of production technologies. The results are consistent with
the idea that immigrants promoted efficient task specialization, thus
increasing TFP, and also promoted the adoption of unskilled-efficient
technologies.'
143 Hoogendo 2012 Team performance 550 Dutch
Randomised
orn and
students, 45
field
van Praag
real companies experiment,
(WP)
exogenous
variation of
team
composition
In the experiment, authors find that 'a moderate level of ethnic
1
diversity has no effect on team performance in terms of business
outcomes (sales, profits and profits per share). However, if at least the
majority of team members is ethnically diverse, then more ethnic
diversity has a positive impact on the performance of teams. This
positive effect could be related to the more diverse pool of relevant
knowledge facilitating (mutual) learning within ethnically diverse
teams.'
144 Ortega and 2012 Trade, productivity Bilateral trade Panel with
Finds a 'robust, positive effect of openness to immigration on long-
1
Peri (WP)
data, 147
gravity-push IV run income per capita. In contrast the positive effect of trade
countries, n =
openness on income is not robust to controlling for the direct effects
30k dyads
of geography. The main effect of migration operates through total
factor productivity, consistent with a theory where immigration
increases the variety of skills available for production. We provide
further evidence in support of this mechanism by showing that the
degree of diversity (by origin country) in migration flows has an
additional positive effect on income. The direct gains from greater skill
diversity appear to be larger than the costs arising from increased
fractionalization.'
145 Nathan (J) 2012 Urban economic Review
None
2
development
103
Count 146
Author /type Suedekum et al (J)
Date Economic outcome Data / focus
2012 Wages (productivity), employment
German local labour markets, 1995-2006
Methodology Panel with IV
Key findings / key points
QA
(1-3)
Finds that 'th higher is high-skilled foreign employment, the higher are 1
local wages and employment levels for natives. These effects are
reinforced the more diverse is the group of high-skilled foreigners. For
low-skilled foreigners benefits from diversity are also found, but only
conditional on the overall size of this group. These results suggest that
cultural diversity benefits native workers by raising local productivity.'
147 Mazzolari 2012 Consumption,
and
prices
Neumark
(J)
Universe of
Partial causality The study looks at 'potential economic impacts of immigration
1
Californian
checks using
stemming from two factors: first, that immigrants bring not only their
business
within-ethnic labor supply with them, but also their consumption demands; and
establishments, group and
second, that immigrants may have a comparative advantage in the
matched with within-industry production of ethnic goods.' It finds 'some evidence that immigrant
Census of
info
inflows boost employment in the retail sector,which is non-traded and
Population data
a non-intensive user of immigrant labor. We find that immigration is
1992-2002.
associated with fewer stand-alone retail stores, and a greater number
Tract-level
of large and in particular big-box retailers ­ evidence that likely
analysis
contradicts a diversity-enhancing effect of immigration. On the other
hand, focusing more sharply on the restaurant sector, for which we
can better identify the types of products consumed by customers, the
evidence indicates that immigration is associated with increased
ethnic diversity of restaurants.'
148 Mundra (WP)
2012 Trade
Trade and
Panel data, IV Finds that 'the immigrant trade elasticity for the no occupation group 1
migrant flows using historical is similar in magnitude to the immigrant effect on trade estimated in
for US and 63 migrant
the literature. However, this does not capture the full extent of the
trading
networks and effect of immigrant network on trade. The share of professional
partners, 1991- dual citizenship immigrants in comparison to immigrants with no occupation
2000
policies
significantly increases the trade elasticity for Rauch's referenced price
and differentiated commodities and this effect is strongest for the
differentiated goods. This paper establishes that immigrants'
occupation is an important indicator of the quality and effectiveness
of immigrants' network in trade creation with the home country.'
104
Count Author /type 149 Hunt (WP)
Date Economic outcome Data / focus
2013 Wages, human capital
American Community Surveys 20092010, US
150 Nathan
2013 Innovation,
7600 London
and Lee)(J)
entrepreneurship firms, 2005-7
Methodology Cross-sectional data, OLS or quantile regressions
Key findings / key points
QA
(1-3)
Paper decomposes immigrant-native wage differences in the
1/ 2
engineering sector. Finds that immigrant engineers have 'a wage
distribution shifted to the right of the native distribution. Among
workers with an engineering degree, however, immigrants
underperform natives, despite somewhat higher education. The gap is
particularly large in the lower tail, where immigrants work in
occupations not commensurate with their education. In the upper tail,
immigrants fail to be promoted out of technical occupations to
management, handicapped by imperfect English and their
underrepresentation among older age groups. In both samples,
immigrants from the highest income countries are the best and
brightest workers.'
Repeat cross- Authors find that 'Ffrst, companies with diverse management are
1
section with
more likely to introduce new product innovations than those that are
partial causality not. Second, diversity is particularly important for reaching
checks
international markets and serving London's cosmopolitan population.
Third, migrant status has positive links to entrepreneurship.'
105
Appendix 2 Topic guide for case study interviews with entrepreneurs and investors Introduction · Give background to and purpose of the research · Explain confidentiality and anonymity · Ask permission to record Section 1. Background: personal and professional Please could you start by telling me a few things about yourself and your business/investment: · How long you have been in the UK · Where you are from · Your age · Education · Where are living in the UK · Family situation in the UK - with partner, children (and ages) · Have own property/rent · Your business/investment (sector, location, size etc.) Could you tell me about what you were doing before coming to the UK under the Tier 1 visa (suggest start from when left Education) · Any businesses activity (what were these, sole or collaborative ventures) · Investments in business (where, what these were) o Do you have your own portfolio o Do you advise other investors (where are these located) · Sources of support for any of these activities 106
Section 2. Background: to applying for entry via Tier 1 I'd like to ask you now about the background to applying for a Tier 1 visa · When did you start your Tier 1 visa application · Why did you apply · Had you previously applied to come to the UK under other visas? o When/what happened · Why did you apply to come under Tier 1 (main reasons) · Why did you choose [sector] and [location] to set up/invest in · Why did you want to come to the UK o Probe for whether the UK and sector were linked as a choice (ie UK seen as good for setting up in that sector) o Probe for whether existing family / professional / other contacts and networks are linked to the decision · Did you have business contacts in the UK before applying o What were these (probe for details) Section 3. The process of applying for entry via Tier 1 Please could we talk now about your experiences of applying for a Tier 1 visa · How did you find out about Tier 1 · How did you initiate the application process (including choosing a sponsor) · How long did it take · Were there any delays or problems with your application (how were these overcome) · How easy or difficult was it to meet the criteria for Tier 1 entry · Were the minimum fund requirements an issue for you (probe for how) · How easy or difficult was it to raise the financial support for your business/investment · Was the source of financial support from your country of origin or the UK · Did you have any non-financial support in preparing for your visa application (what was this and where from) Section 4. The process of setting up business/investing in the UK I'd like you to tell me now about how you set up your business/made your investment in the UK · We talked earlier about your choice of sector and location. What factors did you take into account in your decision-making over your enterprise/investment · Access to support · Recruitment opportunities · Gaps in the market · Presence of other businesses (same sector?) · Anything else · Owners / partners from same country of origin? · Social / professional connections? · How did you go about finding premises, how easy or difficult was this 107
· Are you able to make any comparisons between setting up/investing in the UK and elsewhere? (ask all but particularly those who said in Section 1 that had set up business before) · And how was the experience of settling into life in the UK o did you have the information and advice you needed? (probe for details) Section 5. Recruitment of staff I'd like to ask you now about the jobs that you've created and who works for you · How many people do you employ · What are their job roles · What are their skills and qualifications · How easy or difficult has it been to recruit staff with the skills you need · What type of contract are they on (employed, permanent/temp, full/part time) · What are their personal characteristics o Age and gender o Ethnicity and nationality => probe whether hiring migrants / natives, and specifically staff from same country of origin as entrant · How did you go about recruiting them · How satisfied are you with the quality of staff you have recruited Section 6. Assessment of the business and its impact I'd like to ask you a few questions now about your business, your views on how it's been going · How do you feel your business/investment is going · Is it as you had expected it to be at this point (probe for reasons) · What have been the main challenges · What have been the main areas of success · How much influence have you personally had on the businesses you set up / invest in o Is this passing on knowledge, expertise (probe for details) o Other individual-level impacts (e.g. contacts) · What impact do you think you have made o On the firm(s) you have set up / invested in o In the local area, in the sector, nationally, internationally (as appropriate) · What links have you made with other UK businesses (and what for) · What links have you made with businesses outside of the UK (and what for) o Probe: are these mainly / wholly in your country of origin? Section 7. Reflections on the process and future plans This is the last part of the interview. I'd like to ask for your overall reflections on the Tier 1 visa process and about your future plans · Looking back on the process of coming to the UK through the Tier 1 visa route · Is there any way in which you feel the process could have been different (improved) · Is there any information or support you feel you would have benefited from - either before coming or after arriving in the UK 108
· Would you have any advice to applicants who want to set up/invest in the UK · What are your future plans o Stay in the UK/leave o Expand business/make further investments (where and what in) · What will affect the decisions you make and your longer term plans o Economic/political/personal Anything else? Thank you for taking part in the research 109

M Nathan, H Rolfe, C Vargas

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