Does regional cultural diversity promote business innovation?

A substantial body of literature examines the relationship between regional diversity and the economic performance of workers, firms, and regions. The current state of research is summarized in the recently published Oxford Handbook of Spatial Diversity and Business Economics.

Jan Cornelius Peters, together with Annekatrin Niebuhr (Institute for Employment Research, University of Kiel), contributed the article Regional Cultural Diversity and Firm Innovation: Important Effects of Heterogeneity or Merely Sorting?. The article examines the relationship between regional cultural diversity and firm innovation rates. In addition to a review of the literature, the authors present an original empirical analysis investigating the extent to which firm characteristics contribute to the higher innovation rates observed in culturally diverse regions.

The findings indicate that regions with greater cultural diversity among employees in research and development (R&D) host a disproportionately high number of firms exhibiting characteristics conducive to innovation. Relevant factors include, for instance, industry affiliation, firm size, and workforce composition—particularly with respect to the share of employees holding a university degree or working in R&D. Such regional differences in firm structure, known as composition effects, account for a large share of the disparity in innovation performance between more and less culturally diverse regions and are a more important explanatory factor than the cultural diversity of the regional R&D workforce per se.

Contact: Dr. Jan Cornelius Peters