DP16870 High-Skill Immigration, Offshore R&D, and Firm Dynamics

Author(s): Jingting Fan, Eunhee Lee, Valerie Smeets
Publication Date: January 2022
Keyword(s): Firm productivity, High-skill immigration, Immigrant researchers, R&D offshoring, R&D sourcing
JEL(s): D24, F14, F22, O32
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16870

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