International graduate students created a disproportionate number of new business startups in the United States in the past decade. They also increased entrepreneurialism among their U.S.-born peers, according to new research from the University of California, Davis.

“The high quality of U.S. universities attracts the most talented students globally,” said Giovanni Peri, the director of the UC Davis Global Migration Center and professor of economics in the College of Letters and Science. “At the same time, limited options for students to stay in the country after graduation risks losing the talent and potential that our universities have helped to create.”

In their study, Peri and his co-authors paired information on international students graduating from U.S. master’s programs between 1999 and 2020 with data on the startups they founded in the years following. The study found that an increase of 150 international students in a graduating cohort led to one additional startup within five years, a rate eight to nine times higher than for an equivalent number of U.S.-born students. About a third of that increase in startups was generated by international students’ entrepreneurialism spilling over to their U.S.-born peers who also founded and co-founded firms.

The research was published as a National Bureau of Economic Research Working Paper last month.  

Amplifying entrepreneurialism and innovation

The research team matched data on graduate degrees in the United States from the International Postsecondary Education Data Set with startup data from Crunchbase, a major venture capital tracker and incubator. To establish a causal link between increases in the number of international students who obtain visas to study in the United States and a subsequent increase in startups, the economic analysis is based on changes in out-of-state tuition fees that affected the number of international students who enrolled from year to year. That variation in international student enrollment was statistically consistent with variation in the number of startups created in the years following each cohort’s graduation. 

Notably, the Crunchbase database only includes the more successful startups that survive for at least three years, Peri said. The startups attributed to the increase in international students had a high probability of raising $25 million or more in capital within the first five years. They also are more likely to register at least one patent. International students in business graduate programs represented the largest share of these startup founders.

Top international talent staying in the U.S. generates value locally 

Researchers also found that universities with the highest levels of research activity — especially in the STEM fields — had the highest increase in startups from international students who matriculated from those universities. Among those universities are University of California campuses. 

The value generated by these startups also tends to stay local, researchers found. Most of these new startup firms are located near the university where students received a master’s degree.

At the same time, Peri said, federal policy that determines how long international students can stay means that the talent cultivated by U.S. universities could be lost. The Optional Practical Training visa extends the stay for some STEM graduates by only two years. H-1B visas sponsored by employers, as well as green cards, or permanent resident cards, are also limited. 

Without a legal means to stay in the United States, some students return home. Others leave for countries like Canada or Australia that have more open immigration policies for highly skilled workers, researchers said.

“International graduate students come to the U.S. for a world-class education and we are finding that they return tremendous value in the form of innovative startup firms,” said Peri. “With current public policies, we risk losing the value that we helped to create.”