Date of This Version

October 2012

Abstract

This paper analyses the effect of skilled migration on two measures of innovation, patenting and citations of scientific publications, in a panel of 20 European countries. Skilled migrants positively contribute to the knowledge formation in host countries as they add to the pool of skills in destination markets. Moreover, they positively affect natives' productivity, as new ideas are likely to arise through the interaction of diverse cultures and diverse approaches in problem solving. The empirical findings we present support this prediction. Greater diversity in the skilled professions are associated with higher levels of knowledge creation, measured either by the number of patents applied for through the Patent Cooperation Treaty or by the number of citations to published articles. This finding is robust to the use of different proxies for both the explanatory variables and the diversity index in the labour force. Specifically, we first measure diversity with a novel indicator which uses information on the skill level of foreigners’ occupations. We then check our results by following the general literature, which measures skills by looking at the foreigners’ level of education. We show that cultural diversity consistently increases the innovation performance of European Countries.

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