Restrictive immigration policies and MNE innovation

Abstract

High-skill migrant workers significantly contribute to advanced economies by directly generating knowledge-intensive assets and serving as bridges to knowledge in their origin countries. However, rising populist sentiment has led to increased immigration restrictions in wealthy economies like the U.S. and the Europe Union. This study examines the impact of the 2004 H-1B visa cap reduction on U.S.-based multinational enterprises (MNEs). We use a sample of 371,856 patents assigned to 707 U.S.-based MNEs. We find that post-shock, MNEs increased the geographic dispersion of their global R&D workforce, rather than replacing foreigners with local American workers. Despite this, the firms experienced a decline in innovation performance, likely due to elevated coordination challenges. Interestingly, sectors relying more on codified knowledge demonstrated increased R&D team dispersion with less impact on innovation. This suggests that the geographic proximity of innovation teams is crucial for tacit knowledge-intensive sectors. These findings highlight the complex consequences of immigration restrictions and suggest boundary conditions on the effectiveness of work-from-anywhere models in knowledge-intensive industries.