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Monday 22 August 2011

Economic research on diversity: international perspectives

Jacques PootProfessor of Population Economics

Diversity Research Forum Claudelands Event Centre, Hamilton

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What is the focus of economic research on diversity? (*) = covered in this presentation

• Measurement of diversity (*)• Wages and employment (*)• Productivity and innovation (*)• Consumption and trade (*)• Segregation and segmentation• Discrimination• Decision-making

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Diversity has many dimensions

• Research covers: gender, age, ethnicity, birthplace/nationality, disability, sexual orientation, religion

• This presentation focuses on diversity through international migration only

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Global migrant diversity trends can be measured by a diversity index

• Just measuring the number of countries of birth present in a nation is not very informative

• Instead, a simple diversity index calculates: 1 – sum of the squared shares of each country of origin in the population• The closer to 1 the diversity index is, the more

diverse the population is

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“Continent of Birth” diversity of the world’s population (including the “host” population)

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“Continent of Birth” diversity of the world’s population (excluding the “host” population)

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Socio-economic impacts of international migration and population diversity

• There is a need for a comprehensive multidisciplinary approach: Migration Impact Assessment (MIA)

• MIA is not the same as Cost-Benefit Analysis (CBA)

• MIA is also multi-method: using quan, qual and mixed methods, and meta-analysis

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• A summary: Longhi et al. (2010) in Environment and Planning C – Government and Policy

• Wage and employment impacts of immigration on the host population are almost negligibly small

• Migrants usually ‘complement’ host population work force but are ‘substitutes’ for earlier migrants with similar skills

• Institutions matter: in the US wage effects are bigger than employment effects; in Europe it is the opposite

• Migration ‘greases the wheels’ of the labour market

Meta-analyses of labour market impacts

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Impact of diversity on productivity and innovation

• Forbes Insights report August 2011 “Fostering Innovation Through a Diverse Workforce”

• Method: survey of 321 executives of large global enterprises; some in-depth interviews

Conclusions:• Diversity is a key driver of innovation and success on a global

scale!• Competition for ‘talent’ is fierce in today’s global economy• There has been a lot of progress on gender and ethnic

diversity/inclusion, but less on disability and age

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Diversity and innovation: Research on patent applications

European data2001

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Patent applications per million inhabitants and the share of foreign residents in 170 NUTS 2 regions in 1991 and 2001

Positive relationship, but not necessarily linearThe correlation coefficient increased from 0.33 to 0.48The patents pattern is less clustered in 2001

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• Economists are trying hard to solve the causality problem by new techniques:– Finding ‘instrumental variables’– Finding ‘counterfactuals’– Using ‘natural experiments’– Using policy-linked randomization

• In the case of diversity and innovation research, we found an interesting ‘instrument’

Does correlation imply causation?

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EU12 NUTS2 regions | Obs Mean Std. Dev. Min Max-------------+-------------------------------------------------------- McDonald’s (number) | 340 26.95882 24.74134 0 189 Per million population | 340 13.49947 7.086818 0 33.6

Other instruments: the presence of a capital city; the area of the region

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Impact of diversity on patent applications in EuropeTable 7: Instrumental Variables Estimations1 Dep.var.: ln(Patents) (7.1) (7.2) Share of foreigners -7.005 (7.283) Diversity indexα 3.355 (4.540) Diversity index_b 1.835*** (0.493) Constant -0.915 0.103 (1.179) (1.098) Time/Country FE Yes/Yes Yes/Yes N 340 340 R-squared 0.783 0.803 Notes: 1 The estimations in this table include the following covariates: services/industry sectors value added, GDP growth rate, ln(total population), human resources in S&T, accessibility index. α This index includes the foreign and native population. Share of foreigners is instrumented with spatial distribution of McDonald’s restaurants per million inhabitants and a capital dummy, while the diversity index is instrumented with the former, and area of the regions. Robust standard errors in parentheses, *** p<0.01, ** p<0.05, * p<0.1.

An increase in the diversity index by 0.1 from the regional mean of 0.5 increases patent applications per million inhabitants by about 0.2 percent!

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From macro to micro: Dutch data on innovation

• This study combines 4 confidential high-quality firm/individual level micro-datasets obtained from Statistics Netherlands.

a. Social Statistics Survey (SSB_Banen - REOS) – 10 million obs.b. Community Innovation Survey (CIS 3.5), (Survey + Census of firms with >100 empl.)

10 000 obs.c. Dutch Labour Force Survey (EBB) – 83 000 obs.d. Dutch Municipality registrations (GBA) – 16 million obs.

• CIS: is a regular snapshot of infrastructure /inputs /outputs /obstacles of innovation by firms

• EBB: is a regular screening of labour market and employees on household /ethnicity /country of birth /job situation /education /trade union /commuting

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• “Solving” the causality problem with instruments for predicting predict the share of foreign born in the firm in 2002: – the number of foreign restaurants per 10 000 municipality

population – the migrant population stock in 1996

• Main conclusion: Employing more migrants does not boost innovation, but, among those firms that hire skilled immigrants, greater diversity of the foreign workers enhances product innovation!

Results from the analysis of Dutch data

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Channels through which immigrants influence trade • Population growth through migration increases aggregate demand:

increases imports• Immigrants have a preference for home country products (ethnic

goods and services): increases imports• However, once demand is large enough, firms may produce home

country goods locally: lowers imports• If immigrants contribute to making firms more efficient, international

competitiveness increases: increases exports, lowers imports• Migrant networks reduce transaction costs through better

information exchange, facilitating communication in foreign language, enhanced trust in trading relationship, enforceability of contracts: increases both imports and exports

• Migrant networks are important for both the host country (immigrants) and the home country (diaspora/expats)

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Meta-analysis of the impact of immigration on international trade

• There have been 48 studies since the 1990s that yielded more than 200 estimates

• All studies use the same theory: the ‘gravity model’ of trade

• Each study reports the % change in trade when the number of immigrants in the population increases by 1%

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Estimates around the world Exports Imports

Country nr obs mean min max nr obs mean min max Australia 15 0.43 0.24 0.65 15 0.21 -0.05 0.44 Bolivia 1 0.08 0.08 0.08 1 0.09 0.09 0.09 Canada 10 0.09 -0.07 0.27 10 0.26 0.08 0.41 Denmark 28 0.16 0.05 0.57 28 0.13 0.04 0.34 EU 8 0.27 0.02 0.65 2 0.14 0.13 0.14 Germany 5 0.13 0.11 0.15 1 0.01 0.01 0.01 Greece 2 0.13 0.05 0.20 2 -0.03 -0.04 -0.04 Italy 2 0.05 0.01 0.08 2 -0.03 -0.09 0.04 Malaysia 5 0.11 0.00 0.33 5 0.15 0.00 0.40 New Zealand 15 0.07 -0.02 0.14 15 0.19 -0.04 0.49 Portugal 3 0.31 0.05 0.60 3 0.35 0.23 0.56 Spain 32 0.22 0.02 0.47 23 0.17 -0.05 0.36 UK 14 0.05 -0.03 0.16 10 0.05 -0.01 0.23 US 90 0.16 -0.14 0.57 50 0.19 -0.18 0.47 US/Canada 2 -0.03 -0.11 0.06 2 0.33 0.32 0.34 World 1 0.37 0.37 0.37 9 0.13 0.05 0.28 Total 233 0.17 -0.11 0.65 178 0.17 -0.18 0.56

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• An increase in the number of immigrants by 10 percent increases the volume of trade by about 1-2 percent.

• The impact is lower for trade in homogeneous goods. • The migrant impact on imports is on average similar

to that of exports. • The migrant impact appears to be greater for

migration between countries of different levels of development.

Broad conclusions of the trade meta-analysis

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Relevance of this MIA research for New Zealand

• MIA suggests generally positive or neutral economic impacts

• However, old myths die hard!• NZ, Australian and Canadian policies are generally

seen as better than elsewhere, consequently:– (1) are expected to yield even better impacts– (2) are become ‘role model’ for policy development

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• Hodgson and Poot (2010) New Zealand Research on the Economic Impacts of Immigration 2005–2010 - Synthesis and research agenda. Download from http://www.dol.govt.nz/publications/research/synthesis-research/

• Nijkamp, Poot and Sahin (eds.) (2012) Migration Impact Assessment: New Horizons. Edward Elgar.

Interested in more details?

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Thank you!