IMMIGRATION AND FIRM EXPANSION*

ABSTRACT Research generally focuses on how immigration affects native workers, while the impact of immigration on domestic firms is often overlooked. This paper addresses this important omission by examining whether firms respond to immigration by expanding their production activities within a city in order to utilize the abundant supply of low‐skilled workers. Using data on immigration and the universe of establishments in U.S. cities, the results indicate that firms respond to immigration at the extensive margin by increasing the number of establishments. Not surprisingly, immigration has a more positive impact on the number of establishments that are small in size and in relatively mobile, low‐skill intensive industries. Additional evidence indicates that immigration has little impact on employment within existing establishments, the intensive margin, or on the number of establishments in service industries which may expand simply due to immigrant consumption.