The Unintended Consequences of an International Student Shortage: Evidence from South Korea

Abstract We study the role of international students in the higher education sector and the local economy by exploiting a policy reform in South Korea that restricted the admission of foreign students to local universities. By comparing the pre- and post-reform differences across universities with different prereform shares of international student enrollment, we show that an international student shortage resulted from this policy reform significantly worsened the financial outcomes of universities and consequently led to reduced investment in their students. We also document that a reduction in the number of international students in local areas decreased native employment, mainly in lowskilled sectors such as business support services. Our findings suggest that limiting the inflow of international students can have unintended negative spillover effects on both universities and local labor markets.