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Uncertainty and Immigrant Entrepreneurship: Evidence From Brexit

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View the page of Astrid Marinoni

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Astrid Marinoni shows Brexit’s uncertainty decreased immigrant-founded ventures’ growth rate by 3.2%. Low- and high-quality firms were most affected, discouraging entry.

Image courtesy of interviewee. January 12, 2024

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This video video discusses the significant role immigrants play in the economies of developed countries, particularly as entrepreneurs and employees in startups and high-tech firms. It highlights that immigrants tend to start businesses at a higher rate than native populations and that these immigrant-funded companies constitute a substantial portion of all firms, notably around 25% in countries like the UK and the US.

Despite their economic contributions, many governments are tightening immigration policies, creating uncertainty for immigrants regarding their status and ability to start businesses. This video video uncertainty can adversely affect economic outcomes, such as innovation and company performance.

The research focuses on how increased uncertainty from potential policy changes influences immigrant entrepreneurship decisions. Using the Brexit referendum as a case study, the paper finds that Brexit decreased the entry of new European-funded firms by 3.2%, leading to a loss of over 900 firms in two years. Low-growth firms shifted towards employment rather than entrepreneurship, while high-growth businesses may choose to establish themselves in other countries to thrive.

The study indicates that firms relying heavily on immigrant workers are particularly impacted by immigration uncertainty. The findings suggest that policies threatening immigrant status can have negative economic impacts on entrepreneurship. Overall, the research underscores the importance of stable immigration policies for fostering a healthy entrepreneurial ecosystem, especially at the higher end of the growth potential spectrum, where the loss of even a few high-growth firms can have significant negative consequences for the economy.

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X-TIMESTAMP-MAP:LOCAL=00:00:00.000,MPEGTS=900000

00:00.015 --> 00:02.405
Immigrants are very important in the economies

00:02.405 --> 00:03.445
of developed countries.

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And there are several papers that stress the importance

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of their role that they play, in the liberal market,

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particularly looking at their role as, employees,

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you know, in startups and in, high tech companies.

00:17.105 --> 00:18.645
Uh, but, their role

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as entrepreneur is also very, very important.

00:22.025 --> 00:25.845
So, it's, known that immigrants tend

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to create businesses at a higher rate than natives.

00:29.545 --> 00:31.965
And this has been found through in different settings

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and also different countries.

00:33.705 --> 00:37.125
Uh, and as a consequence, immigrant funded companies,

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tend to make up a very, large share of firms.

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So, for instance, when considering countries such

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as the UK but also the us,

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these companies make up roughly 25% of all firms, which,

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you know, it's something that it's very,

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it's pretty remarkable, considering that the share

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of immigrants, in terms of like population is usually

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around, 14 to 50% in those countries.

01:04.435 --> 01:07.575
And, it's important to not hear that, you know,

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immigrant funded businesses are not only important in terms

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of numbers, so in terms of quantity,

01:13.315 --> 01:14.695
but also in terms of quality.

01:15.275 --> 01:16.655
Um, immigrants tend

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to establish new businesses at every point of the quality

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distribution, meaning that they are more likely

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to start pretty much any type of firm.

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And this can be, you know, a traditional, business such

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as a restaurant or maybe a coffee shop.

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But it also can be a high growth, tech startup.

01:36.235 --> 01:40.335
And, for instance, our recent studies shown that, in us,

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more than half of the startups,

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which are valued at least $1 billion,

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so the so-called unicorns have been funded by immigrants.

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So, that's pretty remarkable.

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Um, however, despite, you know, the presence of,

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numerous studies, that highlight the importance

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of immigrants in the economies of across countries,

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several governments around the world

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are revising their immigration policies,

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and often they end up adopting more stringent regulations.

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And this not only makes it more difficult for immigrants

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to enter all countries,

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but also it makes it harder for immigrants

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that are lawfully present in a country

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to maintain their immigration status

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and their right to stay.

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And of course, this situation is not ideal,

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for immigrants because, as countries become more

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and more likely to change their immigration policies

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and, adopt the more stringent ones,

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the more uncertainty, immigrants are facing

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regarding their status,

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because of course,

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they don't know whether they're gonna be forced

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to leave the country, at some point in time.

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And, you know, what people might not realize is

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that this uncertainty can result in choices

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and behaviors that end up having,

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Important economic consequences for the OS countries.

03:02.825 --> 03:05.205
Um, and this is, exactly

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what we're trying to study in this paper.

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Um, that is, we're trying

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to understand whether an increase in uncertainty,

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triggered by the threat

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of more stringent immigration policies,

03:18.825 --> 03:21.325
can have an impact on immigrants decision

03:21.425 --> 03:23.605
to establish a company in the old country.

03:24.305 --> 03:26.365
And there are several papers that show

03:26.585 --> 03:30.645
how the implementation of stricter immigration policies tend

03:30.645 --> 03:32.405
to have ne negative effects,

03:33.315 --> 03:35.645
when considering a wide range of economic

03:36.165 --> 03:37.365
outcomes in the OS country.

03:37.905 --> 03:40.605
Uh, for instance, there are papers that find

03:40.605 --> 03:44.245
that stricter immigration policies can damage innovation

03:44.785 --> 03:47.125
so they can decrease patenting activity.

03:47.665 --> 03:49.605
Um, other papers find

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that stricter immigration policies can decrease foreign

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profits, stock prices,

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and also employment in tech sectors.

03:58.985 --> 04:02.765
Um, in this paper we focus on entrepreneurship,

04:03.225 --> 04:06.365
and we show that these policies do not have

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to be implemented in practice

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to have an impact on the choice of immigrants

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to fund new firms.

04:13.025 --> 04:15.765
So just the uncertainty derived by the fact

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that the government is considering a change in policy,

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can significantly influence,

04:21.725 --> 04:23.525
immigrant entrepreneurial entry.

04:24.225 --> 04:27.325
To test our research question, we leveraged the outcome

04:27.325 --> 04:31.125
of the Brexit referendum that happened in June, 2016.

04:31.945 --> 04:35.445
So with the referendum, the UK voted to,

04:35.495 --> 04:36.685
leave the European Union,

04:37.225 --> 04:39.925
and, this referendum, was won

04:40.025 --> 04:42.325
by a very close margin, just 2%.

04:42.705 --> 04:45.965
And the outcome was, very unexpected,

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and basically changed the uncertainty phase by a set

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of immigrants present in uk

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that is the European Union citizens.

04:55.905 --> 04:59.765
Uh, so before Brexit, European citizens were free

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to live and work in UK without the need to have,

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you know, any visas.

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And in general, they could benefit from the same,

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working rights as a UK citizen.

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Uh, but after the referendum,

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all these rights were suddenly in danger.

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So it was not clear whether they could freely move from

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and to the uk,

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and whether they would need the now a visa,

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you know, to be able to work there.

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Um, and at that same time,

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this uncertainty did not hit other, extra, European

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immigrants because their immigration status was directly

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regulated by uk.

05:37.745 --> 05:41.445
And so, they did not expect any changes,

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after Brexit regarding their status.

05:44.545 --> 05:48.645
So, what we're gonna do in the paper is we will compare

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these two groups of immigrants,

05:51.505 --> 05:53.085
and we will explain the fact

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that while immigration uncertainty changed post Brexit

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Referendum for European immigrants, other type

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of uncertainties that were triggered by Brexit, so

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for instance, trade uncertainty, were present

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for all immigrants in the same way.

06:09.985 --> 06:13.005
So, besides looking at the, effect

06:13.145 --> 06:16.765
of immigration uncertainty on immigrant entrepreneurship,

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we also try to dig a little bit deeper

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and understand which companies might be more

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hit by uncertainty.

06:24.305 --> 06:28.565
So, for instance, firms that rely on immigrant actors such

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as immigrant suppliers

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or immigrant customers, might be more damaged

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because of course, the immigration status of those actors,

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will also be in danger.

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Right? Um,

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we are also particularly interested in understanding

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how firms of different quality that is firm with,

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different growth potential might respond to uncertainty.

06:51.325 --> 06:53.185
And to shed light on these aspects,

06:53.565 --> 06:57.025
we created a theoretical model of entrepreneurial entry

06:57.315 --> 07:00.465
where basically potential founders with different quality,

07:01.085 --> 07:04.505
face an increase in, immigration uncertainty.

07:05.165 --> 07:09.745
So in general, we would expect, that more uncertainty,

07:10.205 --> 07:13.065
would've negative effects, of course,

07:13.365 --> 07:14.985
on expected profits.

07:15.325 --> 07:18.825
Um, but at the same time, it's unclear how different firms,

07:19.165 --> 07:20.425
might respond to this.

07:20.965 --> 07:25.425
So on one side, expected profits by,

07:25.965 --> 07:28.865
you know, quickly erode companies margins,

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especially when talking about, low growth,

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lower growth businesses.

07:35.245 --> 07:40.185
Um, however, higher growth ventures might actually be more

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exposed to an increase in uncertainty,

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because these ventures tend to cater to,

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more global customers

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and they usually,

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they are very reliant on high skilled foreign workers.

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And to answer a research question,

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we also use a new data set that include,

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includes all incorporations in Great Britain in the period

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before and after the Brexit referendum.

08:05.365 --> 08:07.905
Um, crucially, this data set allows us

08:07.925 --> 08:10.705
to identify immigrant funded businesses,

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and we can also tell if the founders are from a country,

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within European Union

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or not, which is very important in our setting.

08:19.725 --> 08:21.905
In our paper, we find three main results.

08:22.725 --> 08:27.465
So first of all, we find that Brexit decrease the entry

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of new European funded firms by 3.2%.

08:32.645 --> 08:34.865
Uh, and this translates to the loss

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of just over 900 firms in the two year,

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two years following the referendum.

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Um, it's important to understand, at the same time,

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which kind of firms, we are losing here, right?

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Because of course, losing the next high growth startup,

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the next Amazon has very different economic,

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consequences and implications than losing an establishment

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with say, more limited, growth potential such

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as a restaurant or, you know, a traditional coffee shop.

09:07.185 --> 09:10.125
Um, so we find that most of the,

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negative effects on entry, comes from both,

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very low and very high growth firms, while the effect

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for medium firm, is basically, negligible.

09:23.765 --> 09:28.585
Um, so we try to explore, the mechanisms

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behind this results.

09:29.885 --> 09:33.625
So asking ourself what is happening there, right?

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And we find that, founders of low growth firms prefer

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to transition into employment instead

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of becoming entrepreneurs.

09:43.075 --> 09:44.265
While, founders

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of high growth firms might be better off establishing their

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venture in another country, you know,

09:50.885 --> 09:54.385
and keep profiting, from a unique market,

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for laboring goods.

09:56.585 --> 09:58.365
Uh, as a matter of fact,

09:58.505 --> 10:01.765
we do see an uptick in the number of,

10:02.545 --> 10:06.765
new high growth, high growth companies

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that are founded in some other European countries

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after the Brexit referendum.

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And, finally, we also find that

10:16.045 --> 10:19.725
a high reliance on other immigrant actors in the old

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country, makes the negative effect

10:23.505 --> 10:25.485
of uncertainty even worse.

10:26.105 --> 10:27.885
And this means that businesses

10:27.885 --> 10:30.205
that rely on immigrant suppliers

10:30.465 --> 10:34.445
or immigrant customers are particularly hit by uncertainty.

10:34.905 --> 10:37.485
Um, and so they're even less likely

10:37.625 --> 10:38.965
to enter, the market.

10:39.585 --> 10:41.965
So the people are several implications,

10:42.375 --> 10:44.845
which I think are, very informative

10:45.025 --> 10:47.885
for both entrepreneurs and policy makers.

10:48.385 --> 10:51.285
So, first of all, our paper is the first one

10:51.305 --> 10:53.325
to highlight the role of,

10:53.325 --> 10:55.965
immigration uncertainty in immigrant entrepreneurs,

10:56.225 --> 10:57.325
entry decision.

10:57.945 --> 11:00.445
And our main finding, related to this is

11:00.445 --> 11:04.005
that uncertainty results in a suboptimal level of entry.

11:04.745 --> 11:06.045
Uh, we also showed

11:06.115 --> 11:09.805
that immigrant based firms whose survival depends on

11:09.805 --> 11:12.685
immigrant actors are especially hit by uncertainty.

11:13.145 --> 11:16.725
And in general, these results highlight how social capital

11:17.345 --> 11:18.405
and the wide

11:18.425 --> 11:22.085
and diverse entrepreneurial network might actually be very,

11:22.085 --> 11:23.445
very important here

11:23.585 --> 11:26.205
for mitigating this negative effect of uncertainty.

11:27.185 --> 11:30.245
And also, we find that depending on the quality

11:30.465 --> 11:31.565
and growth potential

11:31.565 --> 11:35.205
of their venture prospective immigrant entrepreneurs,

11:35.475 --> 11:38.205
potentially facing strict, more,

11:38.205 --> 11:40.005
stricter regulations,

11:40.015 --> 11:42.885
could be better off taking up employment

11:43.065 --> 11:45.485
or moving to other countries altogether.

11:46.465 --> 11:48.805
And of course, from a policy point of view,

11:49.065 --> 11:52.805
our results suggest that just the mere threat of

11:53.235 --> 11:55.965
More stringent immigration, policies

11:56.535 --> 11:58.045
might have negative,

11:58.525 --> 12:00.405
economic impacts on entrepreneurship.

12:01.025 --> 12:05.685
Um, our paper mainly speaks to policies that, tend

12:05.685 --> 12:08.965
to limit the status and ability to stay of,

12:09.345 --> 12:12.165
of immigrants that are already lawfully

12:12.165 --> 12:13.205
present in a country.

12:13.665 --> 12:17.285
Um, and these policies have become increasingly common,

12:17.705 --> 12:20.685
in recent years, both in Europe and in us.

12:22.285 --> 12:26.025
The other main result that, in our paper is that

12:27.365 --> 12:28.415
only very low

12:28.595 --> 12:32.895
and very high growth, growth companies experience the,

12:32.955 --> 12:35.175
effect of uncertainty, meaning

12:35.365 --> 12:38.295
that these companies are pretty much lost

12:38.295 --> 12:41.335
because the entrepreneurs have better outside options.

12:41.995 --> 12:46.255
Uh, in particular, the effect of, high growth,

12:46.445 --> 12:50.015
high growth companies, is very concerning,

12:50.245 --> 12:51.615
from a policy point of view

12:51.925 --> 12:56.615
because, despite these high growth companies,

12:56.725 --> 12:59.935
that we're losing with Brexit are relatively, you know,

13:00.035 --> 13:01.295
few in number, right?

13:01.795 --> 13:05.015
Um, the loss of these ventures might actually have huge

13:05.575 --> 13:08.175
negative effects on entrepreneurial ecosystem.

13:08.755 --> 13:12.295
And this can potentially damage regional econo regional

13:12.405 --> 13:14.775
economies, as well as at the end

13:14.775 --> 13:17.415
of the day in their economic growth, in the,

13:17.435 --> 13:18.495
in the host countries.

00:00 - Immigrants are very important in the economies of developed countries. And there are several papers that stress the importance of their role that they play, in the liberal market, particularly looking at their role as, employees, you know, in startups and in, high tech companies.

00:17 - but, their role as entrepreneur is also very, very important. So, it's, known that immigrants tend to create businesses at a higher rate than natives. And this has been found through in different settings and also different countries. and as a consequence, immigrant funded companies, tend to make up a very, large share of firms. So, for instance, when considering countries such as the UK but also the us,

00:46 - these companies make up roughly 25% of all firms, which, you know, it's something that it's very, it's pretty remarkable, considering that the share of immigrants, in terms of like population is usually around, 14 to 50% in those countries. And, it's important to not hear that, you know, immigrant funded businesses are not only important in terms of numbers, so in terms of quantity, but also in terms of quality. immigrants tend

01:16 - to establish new businesses at every point of the quality distribution, meaning that they are more likely to start pretty much any type of firm. And this can be, you know, a traditional, business such as a restaurant or maybe a coffee shop. But it also can be a high growth, tech startup. And, for instance, our recent studies shown that, in us, more than half of the startups, which are valued at least $1 billion, so the so-called unicorns have been funded by immigrants.

01:48 - So, that's pretty remarkable. however, despite, you know, the presence of, numerous studies, that highlight the importance of immigrants in the economies of across countries, several governments around the world are revising their immigration policies, and often they end up adopting more stringent regulations. And this not only makes it more difficult for immigrants to enter all countries, but also it makes it harder for immigrants

02:18 - that are lawfully present in a country to maintain their immigration status and their right to stay. And of course, this situation is not ideal, for immigrants because, as countries become more and more likely to change their immigration policies and, adopt the more stringent ones, the more uncertainty, immigrants are facing regarding their status, because of course,

02:43 - they don't know whether they're gonna be forced to leave the country, at some point in time. And, you know, what people might not realize is that this uncertainty can result in choices and behaviors that end up having, Important economic consequences for the OS countries. and this is, exactly what we're trying to study in this paper. that is, we're trying to understand whether an increase in uncertainty,

03:13 - triggered by the threat of more stringent immigration policies, can have an impact on immigrants decision to establish a company in the old country. And there are several papers that show how the implementation of stricter immigration policies tend to have ne negative effects, when considering a wide range of economic outcomes in the OS country. for instance, there are papers that find

03:40 - that stricter immigration policies can damage innovation so they can decrease patenting activity. other papers find that stricter immigration policies can decrease foreign profits, stock prices, and also employment in tech sectors. in this paper we focus on entrepreneurship, and we show that these policies do not have to be implemented in practice to have an impact on the choice of immigrants

04:11 - to fund new firms. So just the uncertainty derived by the fact that the government is considering a change in policy, can significantly influence, immigrant entrepreneurial entry. To test our research question, we leveraged the outcome of the Brexit referendum that happened in June, 2016. So with the referendum, the UK voted to, leave the European Union, and, this referendum, was won

04:40 - by a very close margin, just 2%. And the outcome was, very unexpected, and basically changed the uncertainty phase by a set of immigrants present in uk that is the European Union citizens. so before Brexit, European citizens were free to live and work in UK without the need to have, you know, any visas. And in general, they could benefit from the same, working rights as a UK citizen.

05:09 - but after the referendum, all these rights were suddenly in danger. So it was not clear whether they could freely move from and to the uk, and whether they would need the now a visa, you know, to be able to work there. and at that same time, this uncertainty did not hit other, extra, European immigrants because their immigration status was directly regulated by uk.

05:37 - And so, they did not expect any changes, after Brexit regarding their status. So, what we're gonna do in the paper is we will compare these two groups of immigrants, and we will explain the fact that while immigration uncertainty changed post Brexit Referendum for European immigrants, other type of uncertainties that were triggered by Brexit, so for instance, trade uncertainty, were present for all immigrants in the same way.

06:09 - So, besides looking at the, effect of immigration uncertainty on immigrant entrepreneurship, we also try to dig a little bit deeper and understand which companies might be more hit by uncertainty. So, for instance, firms that rely on immigrant actors such as immigrant suppliers or immigrant customers, might be more damaged because of course, the immigration status of those actors, will also be in danger.

06:37 - Right? we are also particularly interested in understanding how firms of different quality that is firm with, different growth potential might respond to uncertainty. And to shed light on these aspects, we created a theoretical model of entrepreneurial entry where basically potential founders with different quality, face an increase in, immigration uncertainty. So in general, we would expect, that more uncertainty, would've negative effects, of course,

07:13 - on expected profits. but at the same time, it's unclear how different firms, might respond to this. So on one side, expected profits by, you know, quickly erode companies margins, especially when talking about, low growth, lower growth businesses. however, higher growth ventures might actually be more exposed to an increase in uncertainty, because these ventures tend to cater to,

07:46 - more global customers and they usually, they are very reliant on high skilled foreign workers. And to answer a research question, we also use a new data set that include, includes all incorporations in Great Britain in the period before and after the Brexit referendum. crucially, this data set allows us to identify immigrant funded businesses, and we can also tell if the founders are from a country,

08:15 - within European Union or not, which is very important in our setting. In our paper, we find three main results. So first of all, we find that Brexit decrease the entry of new European funded firms by 3.2%. and this translates to the loss of just over 900 firms in the two year, two years following the referendum. it's important to understand, at the same time, which kind of firms, we are losing here, right?

08:48 - Because of course, losing the next high growth startup, the next Amazon has very different economic, consequences and implications than losing an establishment with say, more limited, growth potential such as a restaurant or, you know, a traditional coffee shop. so we find that most of the, negative effects on entry, comes from both, very low and very high growth firms, while the effect for medium firm, is basically, negligible. so we try to explore, the mechanisms

09:28 - behind this results. So asking ourself what is happening there, right? And we find that, founders of low growth firms prefer to transition into employment instead of becoming entrepreneurs. While, founders of high growth firms might be better off establishing their venture in another country, you know, and keep profiting, from a unique market, for laboring goods.

09:56 - as a matter of fact, we do see an uptick in the number of, new high growth, high growth companies that are founded in some other European countries after the Brexit referendum. And, finally, we also find that a high reliance on other immigrant actors in the old country, makes the negative effect of uncertainty even worse. And this means that businesses

10:27 - that rely on immigrant suppliers or immigrant customers are particularly hit by uncertainty. and so they're even less likely to enter, the market. So the people are several implications, which I think are, very informative for both entrepreneurs and policy makers. So, first of all, our paper is the first one to highlight the role of, immigration uncertainty in immigrant entrepreneurs,

10:56 - entry decision. And our main finding, related to this is that uncertainty results in a suboptimal level of entry. we also showed that immigrant based firms whose survival depends on immigrant actors are especially hit by uncertainty. And in general, these results highlight how social capital and the wide and diverse entrepreneurial network might actually be very, very important here

11:23 - for mitigating this negative effect of uncertainty. And also, we find that depending on the quality and growth potential of their venture prospective immigrant entrepreneurs, potentially facing strict, more, stricter regulations, could be better off taking up employment or moving to other countries altogether. And of course, from a policy point of view, our results suggest that just the mere threat of

11:53 - More stringent immigration, policies might have negative, economic impacts on entrepreneurship. our paper mainly speaks to policies that, tend to limit the status and ability to stay of, of immigrants that are already lawfully present in a country. and these policies have become increasingly common, in recent years, both in Europe and in us. The other main result that, in our paper is that

12:27 - only very low and very high growth, growth companies experience the, effect of uncertainty, meaning that these companies are pretty much lost because the entrepreneurs have better outside options. in particular, the effect of, high growth, high growth companies, is very concerning, from a policy point of view because, despite these high growth companies, that we're losing with Brexit are relatively, you know,

13:00 - few in number, right? the loss of these ventures might actually have huge negative effects on entrepreneurial ecosystem. And this can potentially damage regional econo regional economies, as well as at the end of the day in their economic growth, in the, in the host countries.

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