How Does Diversity and Immigration Impact Innovation?

Anca Pop
Nowadays, due to the increasingly competitive economic environment, and the constant danger of economic turn-downs, innovation has come into great prominence not only as an important source of competitive advantage, but also as a powerful driver of economic growth and prosperity. In this new context, attention has been drawn to the role that cultural diversity and immigration play in fostering innovation. Thus, the aim of this essay is to assess the impact of immigration on innovation. Furthermore, the question regarding whether or not a culturally diverse society represents an enabling environment for innovativeness shall be discussed. Nevertheless, a number of evidences and empirical data which support the linkage between cultural diversity, immigration and the innovation process shall be analysed.

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Statistical reports have shown that at the turn of the century “4.6% of world population was born in a different country from the one where it currently lived”. (Bratti and Conti, 2012:2). Given the size of this phenomenon, immigration has come into sharp focus on the global agenda, currently being at the centre of many economic and political debates and its economic consequences giving rise to a high level of research activity. Thus, it would be of highly importance to consider the contribution of increasingly cultural diversity in many societies to the innovation system especially when dealing with economic analysis and policy. However, in order to be able to analyse the effects of immigration and cultural diversity on innovation, firstly, the meaning of „innovation” as a concept along with its indicators should be tackled.
Defining “innovation” could be rather a difficult task as it is a “multi-faceted phenomenon”, and a widely used concept in various ways and different contexts. (Venturini, 2005: 1) However, it could be generally agreed that ”Innovation is different from pure invention. Innovation involves the successful implementation of a new product, service or process, which for most activities entails their commercial success.” (Gordon and McCann, 2005: 3). In addition to this, Ozgen, Nijkamp and Poot (2013: 3) state that innovation is achieved “by means of analytical knowledge” and argue that “The improvement of an existing product or the modification of an existing process or organizational arrangement can also be viewed as an innovation.” Regarding the measures of innovation, the most prominent ones are the number of patent applications and the Total Factor Productivity, used as proxies of technological growth and effective innovations at both firm and country levels. Having now defined this process, leads the analysis further, to establishing how does immigration affect innovation.
In recent years, research activities have demonstrated a rather positive correlation between migration and innovativeness, as “individuals coming from different countries usually have different, complementary skills with respect to natives, and the production of new ideas may be positively influenced by contacts and interchanges between culturally diverse individuals” (Bratti and Conti, 2012: 4). In addition to this, “migration brings youth to ageing countries, and allows ideas to circulate in millions of mobile minds. That is good both for those who arrive with suitcases and dreams and for those who should welcome them”. (The Economist, 2011)
A rather more technical research on this matter is conducted by Ozgen, Nijkamp and Poot (2012) who study the impact of size, skills and diversity of immigration on the innovativeness of host regions using the number of patent applications per million inhabitants from 170 regions in Europe for the periods 1991-1995 and 2001-2005. According to this study, there are five mechanisms through which immigration may boost innovation: “the population size effect”; “the population density effect”; “the migrant share effect”; “the skill composition effect” and “the migrant diversity effect”. (Ozgen, Nijkamp and Poot, 2011:2).
The first three mechanisms result from the fact that immigration increases the local aggregate demand. This boost in the aggregate demand could be met through an increase in the level and diversity of local production, which in the long run might need additional investment and thereby will encourage product and process innovation. Furthermore, local economy prosperity not only will generate firm growth but will also encourage additional start-up firms resulting into an innovation lift. Moreover, usually attracted to the large metropolitan areas with better job opportunities, migrants increase the urban population and thereby strengthen the forces of agglomeration which leads to greater innovation. (Ozgen, Nijkamp and Poot, 2011: 3).
A more debated way through which the innovation system is enhanced by immigration refers to the skill composition effect on innovation. Given that the modern economy is in a constant quest for fresh ideas and better goods that would accelerate business growth, the global competition for highly-skilled migrants has gained magnitude. “Their role in innovation may seem obvious: the more clever people there are the more ideas are likely to flourish, especially if they can be commercialised.” (The Economist, 2009) Considerable empirical evidence for this is provided by Kerr who gathered data about the 8 million scientists who had acquired an American patent between 1975 and 2004. Hence, he found that the share of patents given to American-born scientists fell while the share of all patents awarded to immigrant scientists from China and India increased from 4.1% in the late 1970s to 13.9% between 2000 and 2004. (The Economist, 2009) Moreover, Kerr and William Lincoln (2008) analysed the way changes in the number of H-1B visa admissions reflected on patents in the years between 1995 and 2006. It is imperious to mention that H-1B visa is the United States work visa for skilled immigrants, which allows US companies to employ foreign workers in specialty occupations that require theoretical or technical expertise as well as the attainment of a bachelor’s degree or its equivalent as a minimum. Thus, they point out that “the estimates suggest that a 10% growth in the H-1B worker population is associated with a 2% increase in patenting” (Kerr and Lincoln, 2008: 20)
Bosetti, Cattaneo and Verdolini (2013: 1) predict that skilled immigration has a significant positive contribution not only to the knowledge creation in host countries as “they add to the pool of skills in destination markets”, but also enhances natives ‘productivity as the interaction of diverse cultures and approaches in problem solving and brain storming situations might give birth to new, original ideas. In order to support these predictions, they have studied the effect of skilled migrants on the number of patents applied for through the Patent Cooperation Treaty and citations of scientific publications, as proxies of innovation in a panel of twenty European countries from 1995 to 2008. Thus, in accordance with their initial prediction, Bosetti, Cattaneo and Verdolini (2013:11) found out that “the variable measuring the stock of knowledge in a given country (stock of R&D expenditure) exerts a positive and statistically significant effect on innovation. A 1 percent increase in the stock of R&D expenditures is associated with a 0.6 percent and a 0.4 percent increase in patent application and citation, respectively”.
In a similar vein, Hunt and Gauthier-Loiselle (2009) measure the likeness of skilled immigrants to enrich innovation and at what extent. They do so by evaluating the differences in patenting behaviour between immigrants and natives as well as the state-level determinants of patenting using a panel of data from 1940-2000 in the Unites States. The results show that a 1% increase in the college graduate immigrants implied 6.1% rise in patents per capita while 1% increase in the share of college natives raise patents per capita only by 3.5%. Furthermore, “1.3 percentage point increase in the share of the population composed of immigrant college graduates and the 0.7 percentage point increase in the share of post-college immigrants both increased patenting per capita by about 12% (..). The 0.45 percentage point increase in immigrant scientists and engineers increased patenting per capita by about 13%.” (Hunt and Gauthier-Loiselle, 2009:20). Hence they discover that one way skilled immigrants could boost patenting per capita is by engaging in science and engineering as the knowledge and skills these occupations request are more easily transferable across countries. Skilled immigrants could also enrich patenting per capita, if an immigration policy regarding immigrants’ selection according to their abilities and knowledge levels was introduced. This would attract more science and engineering orientated migrants and would encourage less skilled migrants to acquire higher education and engage themselves more into the innovation process. (Hunt and Gauthier-Loiselle, 2009: 2).
Nevertheless, due to migration and globalisation, diversity has become an increasingly outstanding feature of today’s world. This brings into discussion the fifth mechanism through which immigration can boost the innovation system, the migrant diversity effect, as an important link to innovation. A say on this matter had the European Commission (2008: 8), in their work regarding the diversity journey in search for talent, competitiveness and innovation: “as innovation processes depend on harnessing creativity, and while dynamic as well as supportive systems of management can elicit the best from staff, like-minded people will usually produce like-minded results. Diversity in the workforce can, however, help companies to break this mould and the cycle of limited unilateral thinking and, in so doing, set them free to discover new products, markets, and ways of doing or leading business”. Empirical evidence that confirms the positive linkage between cultural diversity and innovation is provided by Niebuhr (2006). She investigates the impact of a cultural diverse labour force in German regions on innovation, using a sample of 200 different nationalities. The results show cultural diversity to be beneficial to innovation: “Due to their different cultural backgrounds, it is likely that migrants and native workers have fairly diverse abilities and knowledge. Thus, there might be skill complementarities between foreign workers and native in addition to those among workers of different qualification levels.” (Niebuhr, 2006: 564).
But are cultural diversity and immigration always beneficial to innovation? According to Bratti and Conti (2012: 4), cultural diversity might also cause difficulties in communication, especially when natives and immigrants do not speak the same language. This might reduce social capital and therefore act as an impediment to innovation and economic performance. In addition, Ozgen (2013: 92) finds as outcomes of cultural diversity, lower levels of trust and higher discrimination within firms, “non-transferability of skills” or “non-recognition of qualifications” which play as impediments in ideas exchange or the formation of new knowledge. Similarly, “co-ethnic networks can lead to spatial or occupational segregation and clustering of migrant groups, which may also impede the contribution of immigrants to firm innovation”.
Moreover, a few other situations which lie on the negative side of immigration could be observed. That would be the case of areas experiencing higher inflows of low-skilled or low educated migrants: “unskilled immigration can have a negative effect by reducing social capital, creating communication problems among workers or pushing firms to lower their efforts to introduce product and process innovations”. (Bratti and Conti, 2012:16). In order to uphold this statement, Bratti and Conti (2012: 22) evaluate the effect of low-skilled immigrants in Italian provinces on patent applications, as a proxy for innovativeness. Thus, they find evidence that there is a significant negative effect not only of low-skilled migrants, but also an overall negative effect of large inflows of immigrants on innovation: “rising immigrants’ share by 1 p.p. produces a 0.064 percent reduction in patents’ applications per 1,000 inhabitants.” This negative effect is proved to be mostly driven by the characteristics of immigrants who “mainly appear as a source of low-skilled and cheap labour force, which is employed in traditional economic sectors” (Bratti and Conti, 2012:11). Although it focuses especially on Italy, Bratti and Conti’s study is not necessarily a particular case, as their findings are also consistent with the Lewis’ work (2011: 1031) who has proved that areas rich in low-skilled immigrants areas adopted less machinery, giving technological change a slower evolution and: “plants added technology more slowly between 1988 and 1993 where immigration induced the ratio of high school dropouts to graduates to grow more quickly”. Hence, the substantial immigration boom from the end of the last century had a negative impact of knowledge formation and actively led to a slow growth in the supply of skills in the United States: “only after the large wave of immigration in the 1980s did high-immigration cities become more unskilled than low immigration cities.” (Lewis, 2011: 1031).
On the other hand, there are also claims that even low-skill immigrants can indirectly enhance productivity gains and innovation: “Even low-skill immigrants who start small businesses that stay small are important to the American economy. They provide low cost services and access to more goods. There are also second-order effects, for example someone who provides child or elder care cheaply provide an invaluable service. This allows natives to works outside of their home” (The Economist, 2010). Similarly, Peri (2009: 17) has found a positive linkage between productivity gains and immigration in the United States in the years between 1960 and 2006, although the most majority of the immigrants in his sample were low-skilled and engaged in menial work. He proves that the inflow of unskilled migrants resulted in a more efficient allocation of skills and education to jobs amongst natives, thereby leading to an increase in the total factor productivity. Additionally, the negative effects of cultural diversity and unskilled immigrants could be overcome by properly exploiting the competencies of skilled immigrants as well as by attracting more highly educated immigrants. This could be achieved by introducing favourable immigration policies for high-skilled immigrants, in order to foster innovation and economic growth. Furthermore, free language courses and job-related training programs could be provided for immigrants in order to reduce language barriers and allow them to develop or upgrade their skills.
To conclude, on theoretical grounds, there are several ways in which immigration and cultural diversity can affect both positively and negatively the innovation system. Given such a mixture of positive and negative effects, the overall impact of immigration on innovation should be considered in terms of empirical evidences. In this sense, this essay has presented a number of different studies and approaches from European countries, but also from the United States. What is more, five mechanisms through which immigration can boost innovation have been analysed. As opposed to this, several negative effects of cultural diversity and immigration with regards to the innovation process have been considered along with several ways these drawbacks could be overcome. Thus, all things considered, it could be consented that migration and cultural diversity represent an opportunity as much as a challenge, but if managed carefully it would lead to positive outcomes such as innovation, technological change, increasing productivity gains and ultimately to economic growth.
References

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