New survey measures MIT’s economic impact

Firms created by alumni would form world’s 11th largest economy

CAMBRIDGE, Mass., December 1, 2011—MIT’s importance in helping create innovation and spawn successful firms is well known, but a new study just published in Foundations and Trends in Entrepreneurship (NOW Publishers, Hanover MA) attaches some eye-popping data to that historic role: If the active companies founded by living MIT alumni were an independent country, the report finds, their combined revenues would make it the 11th largest economy in the world.

And even that may understate MIT’s powerful entrepreneurial impact, said MIT Sloan Professor of Management of Technology Edward Roberts, founder and chair of the MIT Entrepreneurship Center and co-author of the study with his former MIT Sloan doctoral student Charles Eesley, now a faculty member at Stanford University. “This report quantifies the significant impact of MIT’s entrepreneurial ecosystem that supports firm start-ups,” he said. “It documents the dramatic economic impact of MIT alumni, students, staff, and faculty who have formed new enterprises over the past 50 years.”

The report is based on one of the largest surveys of entrepreneur alumni ever conducted, he said. The effort began in 2001 when MIT sent a questionnaire to nearly 106,000 living alumni. Two years later, a follow-up survey focused on the respondents who had founded one or more companies. The researchers were then able from the data gathered to estimate the scale of MIT’s role in creating companies and jobs, concluding that at the end of 2006, living MIT alumni had created 25,800 still active companies that employed 3.3 million people and generated annual global revenues of nearly $2 trillion, “producing the equivalent of the 11th-largest economy in the world.” A critical additional finding is that those companies that were based upon technology drawn from MIT and other universities generated 1.7 million of those jobs and about $1 trillion of the total revenues. An additional million jobs and $700 billion in global revenues came from MIT-alumni firms that were based upon technologies from industry and government, with only 15 percent of the economic impact arising from non-technical companies.

The authors acknowledge some degree of uncertainty in the economic estimates. “But the trends in the numbers are clear,” said Roberts and Eesley. “More entrepreneurs emerge out of each successive MIT graduating class and they are starting their first companies sooner and at earlier ages. Over time, the number of multiple companies founded per MIT entrepreneurial alumnus has also been increasing, thereby generating dramatically increased economic impact per graduate.”

According to the survey, Massachusetts is the biggest beneficiary of firms created by MIT alumni, with an estimated 6900 MIT alumni firms headquartered in Massachusetts alone, employing about 1 million people, followed in order by California, New York, Texas, and Virginia. Though fewer than 10 percent of incoming MIT freshman are from Massachusetts, nearly 40 percent of the software, biotech, and electronics companies founded by MIT graduates are located in the state. “Not only do MIT alumni, drawn from all over the world, remain heavily in Massachusetts but their entrepreneurial offshoots benefit the state and country significantly,” the study found. “Greater Boston in particular, as well as northern California and the Northeast, broadly, is home to the largest number of MIT alumni companies.”

The survey also found that “a large fraction” of the foreign students drawn to MIT remain the United States. “Well over half of the firms created by foreign students who graduate from MIT are located in the United States, generating most of their economic impact in this country. Moreover, the foreign students are even more likely than domestic MIT students to become entrepreneurs, and their companies are far more likely to engage in manufacturing, spawning significant economic benefits for their locales and this country”, Roberts emphasized.

While the study is centered on MIT, it offers other institutions a baseline against which to measure their own entrepreneurial strengths, said Roberts. “MIT is more unique and unusual in the programs it offers and in its historical culture of entrepreneurship. But MIT provides a benchmark by which other institutions can gauge the economic impact of their alumni entrepreneurs.”

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