Immigration and New Firm Formation – Evidence from a Quasi-Experimental Setting in Germany

Abstract

This paper provides new insights into the economic impact of international migration by analyzing how immigration can affect business formation in the host country. For this purpose, we exploit a placement policy in Germany in the 1990s for immigrants of German descent from Eastern Europe and the former Soviet Union (Aussiedler). Our empirical results at the regional level suggest that immigration had a positive impact on firm formation. The most likely mechanism driving this result is a positive implication of population diversity, while entrepreneurial activities of ethnic Germans and supply-side aspects seem to be of minor importance for our findings. Our results demonstrate that immigration under certain conditions – among others, equal legal treatment to natives – can stimulate business creation. Our findings enrich the political debate about the economic effects of immigration frequently discussed in receiving countries.