How Migrants Boost Innovation

Earlier this week I covered an interesting new study from the University of California San Diego School of Global Policy and Strategy, which explored the impact of immigration on society, and especially on innovation.

It shows that bringing in talent from abroad not only helps with the birth of new products and phasing out of older ones, but also has an impact on corporate profits and consumer wellbeing.

“We found companies with higher rates of H-1B workers increased product reallocation–the ability for companies to create new products and replace outdated ones, which in turn, grows revenue,” the authors say. “This discourse could have far reaching implications for U.S. policy, the profitability of firms, the welfare of workers, and the potential for innovation in the economy as a whole.”

It’s a topic that has attracted a number of studies recently, with a second recently published by a pair of Harvard researchers who thought that the general debate about the innovative output of migrants was too narrowly confined to whether they create jobs or not.  Instead, they wanted to look at migrants as carriers of knowledge, which can then be combined with that from locals to create new innovations.

Carriers of knowledge

Such flows of novel thinking have been well documented in the past, whether it’s French Huguenots moving to Germany and taking cloth dyeing knowledge with them, or Soviet mathematicians migrating to the United States after the fall of the Soviet Union.

“Knowledge that is locked in geographic regions doesn’t transfer globally instantaneously,” the authors say. “It’s only when ethnic migrants who harbor this knowledge transfer that it moves from one geography to another.”

This lag occurs because there is initial uncertainty about whether the foreign knowledge will transfer successfully to the new region.  There are also challenges in transferring largely tacit knowledge to others who can codify and modify it.

The paper explored the impact of this in a pharmaceutical context, as a number of pharma companies had earned exemptions from H1-B limits to bring in talented scientists from China and India.  In the 2000s however, the quota of H1-B visas dropped dramatically, which allowed the authors to analyze the impact of this on innovation in the sector.

The right medicine

The researchers explored over 750 herbal medicine patents filed between 1977 and 2013, and compared the firms that managed to get an exemption on the quota between 1999 and 2003, and those who did not.  In the years when the quota was increased, there was a 4.5% rise in the number of patents from firms who were exempted from the quota cap.  This impact then continued after 2003.

Interestingly, it generally wasn’t first generation migrants who were doing the innovating, as they tended instead to stick with their original technologies.  Rather, it was teams that contained a mixture of migrants and natives who took new technologies and combined them into something novel.

“Knowledge transfers through social networks,” the authors say. “If a firm created mechanisms where the locals would work with migrants, then that knowledge would transfer and potentially be combined by the locals.”

The study provides yet more evidence to support open immigration policies, as not only do such policies tend to directly result in new products and services, they also result in new knowledge being created and innovations emerging.

“If the world just erects walls and doesn’t let skilled migrants come in, there will be the loss of the first-order effect, which is the knowledge being transferred from their geography to here,” the authors conclude. “But the bigger loss would be the recombination loss.”