Firms’ R&D activities increasingly rely on foreign inputs in the form of immigrant researchers and imported R&D services. This paper studies firms’ decision on using foreign inputs in R&D and its implication on firm performance and aggregate productivity. Using administrative data from Denmark, we document two facts: that the use of foreign inputs increases firms’ R&D efficiency and boosts firm performance, and that recruiting immigrants reduces the barriers that firms face in sourcing R&D services from abroad. We develop and estimate a firm dynamics model in which R&D can be done with a combination of domestic inputs, immigrant researchers, and imported R&D services. Two elements of the model— love for variety of ideas in R&D and an information channel of immigrants—rationalize the two facts and imply complementarity between different R&D inputs. Counterfactual experiments show that incorporating the use of foreign inputs in R&D is important for assessing the impacts of immigration, service offshoring, and R&D policies.

Register here to receive an email with a Zoom link to the seminar.