Centre for Economic Performance LSE RSS Email Blog Twitter

Abstract:

cover
SERC/Urban and Spatial Programme Discussion Paper
Cultural Diversity, Cities and Innovation: firm Effects or City Effects?
Neil Lee
October 2013
Paper No' SERCDP0144:
Full Paper (pdf)

JEL Classification: J61; L21; M13; 011; 031; R23


Tags: cultural diversity; innovation; cities; smes; migration

Growing cultural diversity is seen as important for innovation. Research has focused on two potential mechanisms: a firm effect, with diversity at the firm level improving knowledge sourcing or ideas generation, and a city effect, where diverse cities helping firms innovate. This paper uses a dataset of over 2,000 UK SMEs to test between these two. Controlling for firm characteristics, city characteristics and firm and city diversity, there is strong evidence for the firm effect. Firms with a greater share of migrant owners or partners are more likely to introduce new products and processes. This effect has diminishing returns, suggesting that it is a ‘diversity’ effect rather than simply the benefits of migrant run firms. However, there is no relationship between the share of foreign workers in a local labour market and firm level innovation, nor do migrant-run firms in diverse cities appear particularly innovative. But urban context does matter and firms in London with more migrant owners and partners are more innovative than others.