Emigration and entrepreneurial drain

Emigration of young, highly educated individuals may deprive origin countries of entrepreneurs. We identify exogenous variation in emigration from Italy by interacting past diaspora networks and current economic pull factors in destination countries. We find that a one standard deviation increase in the emigration rate generates a 4.8% decline in firms creation in the local labor market of origin. An accounting exercise decomposes the estimated effect into four components: subtraction of individuals with average entrepreneurial propensity, selection of young and college-educated among emigrants, negative spillovers on firm creation and selection on unobservable characteristics positively associated with entrepreneurship.