How Foreign Brains May Power the U.S. Economy

America has welcomed outsiders from all over the globe for many years, and now it is reaping the dividend of their intellectual property.

Over half of the patent applications in the U.S. over the last six years were filed by non-residents. Innovation and entrepreneurial activity can be a good indicator of economic growth. Invention of new products and their adaptation for mass usage helps creating new manufacturing processes, new jobs and therefore helps to expand economic activity.

World Bank Data shows that percentage non-resident patent applications in the US have remained in the range of 49–50% since 2009, a significant increase from approximately 40% in the 1980s.

But does that really impact economic growth? A team of European researchers at Germany’s Frauhofer Institute for Systems and Information Research analyzed several indicators related to patent quality, such as citations, grants, number of inventors as well as economic indicators like GDP, population and exports. The research concluded that patents are correlated with exports and can be used as a measure to gauge export activity as well as market development.

This is reflected in World Bank data (see chart) where a period of increase in patents filed by non US residents corresponds with a period of high GDP growth in the US economy.

The only drawback is that not all ideas come to fruition and not all patents filed translate into economic activity. Some patents are filed to block competition and some never end up becoming a real product.

While one may discount for patents rejected, intellectual property and patents could unlock huge potential for the US economy. One can take cue from the period of rapid growth witnessed by China between 2010 and 2014 that also saw patent applications filed by Chinese residents almost double.

For an economy that is yet to completely recover from the recession, inventions could be the unexpected engine that powers growth.

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