High-Skill Migration, Multinational Companies, and the Location of Economic Activity

Abstract

This paper examines the relationship between high-skill immigration and multinational activity. I assemble a novel firm-level dataset on high-skill visa applications and show that there is a large home-bias effect. Foreign multinational enterprises (MNEs) in the US tend to hire more migrant workers from their home countries compared to US firms. To quantify the general equilibrium implications for production and welfare, I build and estimate a quantitative model that includes trade, MNE production, and the migration decisions of high-skill workers. I use an instrumental variables approach to show that the relationship between immigration and MNEs proposed by the model holds in the data. The model is then used to run two counterfactual exercises. The first, evaluates the implications of a more restrictive immigration policy in the US. I find that MNEs play a significant role in how immigration affects the location of production and welfare. In the second counterfactual exercise, I increase the barriers to MNE production to calculate the welfare gains generated by MNEs. I show that a model not incorporating migration would overestimate the MNE welfare gains for high-skill workers by 35% and underestimate welfare gains for low-skill workers by 8%.