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«Discussion Paper 77-2013 MIGRATION AND INNOVATION – A SURVEY Sheida Rashidi Andreas Pyka Universität Hohenheim | Forschungszentrum Innovation und ...»

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Stark (2003) and Stark et al. (1997) evaluate the human capital formation in an economy with migration and without migration. They theoretically show that a carefully designed migration policy can be welfare-enhancing for the sending country. Related to human capital formation influenced by migration, Beine et al. (2001) discuss two contradictory impacts of high-skilled migration; a brain effect and a drain effect. Since in a poor country, the return to human capital is low and therefore can lead to limited incentives to acquire education, allowing migration from this country increases the educated fraction of its population and given that only a proportion of educated finally emigrate, the average level of education increases. This impact of high-skilled migration constitutes the brain effect and is potentially positive if it dominates the drain effect. The size of the drain effect is determined by the number of educated persons that leave the country. Depending on the sizes of both effects, beneficial brain drain might exist. Beine et al. (2001, p. 288) further show evidence for their theory at the empirical level: “Beneficial Brain Drain is more than a theory, mainly because migration prospects seem to play a significant role in education decisions.” Regets (2001) additionally argues that the incentives for human capital investment increase because brain drain leads to an increased scarcity of high-skilled workers in the sending country and raises the domestic returns to skills. A further positive effect stems from the improvement in the organization of labor markets for high-skilled workers in the sending country. In particular, in cases of a lack of demand for high-skilled workers, emigration acts as a stabilizer reducing the risk of investment in human capital.

For the authors emphasizing the positive aspects of high-skilled emigration effects on the sending country (Stark 1997, Beine et al, 2001, Mountford 1997) an optimal level of migration exists where the negative brain drain effects are compensated for. A further argument often found in the literature has to be mentioned in this survey as well: The effect of remittances of emigrants to the sending countries. Skilled migrants earn more and therefore, other things being equal, are likely to remit more. Some authors argue that the negative effects of the brain drain are somewhat offset by inward remittances from migrants (Faini 2007, p. 179).

A more recent approach to the migration of high-skilled is the brain gain through return migration or even brain circulation. This approach applies a dynamic network perspective to consider the effects of economic connections of migrants within the host country and to his/her country of origin. This perspective highlights that emigration of highly-skilled is not only a loss for the sending country. The migrants entertain linkages to their countries of origin which are used to transfer knowledge and to initiate economic activities. Also after a return of the migrants established relations connect the origin and the host countries with important economic implications for both countries. Social ties between skilled workers facilitate the transfer of knowledge and the return of experienced high-skilled migrants well connected in international business may compensate by far the brain drain of new outflows.

Therefore, sending countries potentially benefit from the skills and social ties accumulated abroad by their emigrants. In the literature different reasons for return migration are discussed: failure, conservatism, retirement and innovation (Wickramasekara 2003, p. 11).

Return migration is analyzed within different theoretical approaches (Cassarino 2004). The new approach of migration economics (NELM) views return migration as a normal step after the migrants met their targets. Attachment to homeland and households eventually brings the emigrants back home after their goals are met. The returnee has acquired skills and experiences which he/she brings into the economy of the country of origin. In terms of social network theory the returnees are viewed as owners of tangible and intangible resources.

Cassarino (2004, p. 265) states: “Just like the transnational approach to return migration, social network theory views returnees as migrants who maintain strong linkages with their former places of settlement in other countries.” In the transnationalism theory the returnees are seen as actors that mobilize resources stemming from general attributes such as religion and ethnicity and social network theory emphasizes that actors mobilize resources available at the level of social and economic cross border networks. In both transnationalism and social network theory return is not seen as the end of the migration process but it is instead a stage of it. According to the two theories, the sending countries eventually can benefit from brain gain by return of their emigrants. Gains may flow back to the developing country via returnees with enhanced skills, personal connections, and ideas for innovation (Saxenian 2005). The return option was implemented in the 1970’s until 1990’s in so-called repatriation policies which should encourage high-skilled emigrants to return home. However, developing countries are usually not in the situation to offer the same incentives to their high-skilled migrants as they have access to in developed countries. Thus only a few newly industrialized countries such as China, India, South Korea, Hong Kong and Taiwan were successful in the implementation of these strategies (Brown 2002).





The standard labor market model of immigration assumes that migration is a mere reaction to the current economic conditions; nevertheless immigration evidently reacts to the countries’ long-run prospects for economic growth and development. These long run impacts depend on how immigrants affect the economic growth rate. The early models of economic growth view growth as a result of an increase of the production factors, labor and capital, or improvement of technology leading to greater productivity. In evolutionary economics, instead, the key driver of economic evolution is entrepreneurship and innovation (Boschma & Martin 2010, p.

136). Creating variation and fostering the diffusion of varieties are the two important roles played by entrepreneurs. In evolutionary economics economic actors are heterogeneous implying that individuals as economic agents are endowed with different knowledge, skills, attributes and preferences. Similarly, environments are heterogeneous, implying that they are endowed with different knowledge, institutions, resources as well as demand for products.

Hence the entrepreneurial process depends on and is a result of the interaction between agents and their environment. External knowledge sources play a major role in the Schumpeterian view. External knowledge can become available through involuntary spillovers or intended knowledge transfers and collaborations. In her survey on empirical studies on location and innovation, Feldmann (1999) finds two major traditions: (i) the concept of geographically mediated spillovers which adds a geographic dimension to the determinants of innovation;

and (ii) the determinants of differences in economic growth rates of different regions. In the first tradition authors try to quantify the impact of knowledge spillovers on innovation by referring to geography and based their estimations on production function. Authors of the second tradition consider for example agglomeration economics which foster innovation, and with it regional economic growth. Additional to this diversity argument, networks and national institutions play important roles in the economic development, in particular in knowledge based economies.

3.1 The role of diversity Boschma and Martin (2010 p.142) stress a further perspective on migration and innovation by

addressing the additional possibilities of cross-fertilization due to the migrants’ knowledge:

“Innovation is a product of interaction between actors that have sufficiently different knowledge, in order to make Schumpeterian new combinations.” The combination of diverse knowledge plays an important role in the exploration of the knowledge landscape. Diversity is to be conceived as a broad concept which goes beyond diversity in production factors and resources, diversity in products but encompasses also diversity in technology and knowledge bases, behaviors and cultures. In other words, the concept of diversity stresses that economic agents are heterogeneous in all dimensions. The different types of diversities are not independent but mutually influence each other in a complementary way. Ozgen et al. (2010, p.9) describe diversity in the economy with a multilayer concept, in which ethnic, linguistic, religious and personal perceptions of belongings interact with the effects of diversity on innovation. Migration increases the diversity in ethnic identities.

Constant et al. (2006, p. 5) define ethnic identity as the balance of the commitments with a host country and the country of origin. Keely (2003) focusses on the interaction between high-skilled migrants and the local labor force which enhances the knowledge spillover pool and supports the creation of new ideas. These interactions are not random but specific patterns are to be observed in the form of clusters and networks. The networks serve as channels of knowledge transfer which besides the exchange of knowledge contribute to mutual learning and new knowledge creation. The architecture of these networks depends on national institutions and therefore differ between countries which results in varying contributions to innovation. Additionally, there is a trade-off between the positive and negative impacts of cultural diversity. The negative impacts stem from language and cultural barriers between native workers and high-skilled migrants which increase transaction costs. A higher diversity, hence, does not necessarily imply improved innovation performance. Too much cultural diversity in a region might frustrate mutual understanding, cause social stress situations or distortion of local identities. To illustrate this relationship between diversity and economic performance De Graaff and Nijkamp (2010) introduce an inverted U-shape relation which allows for the derivation of an optimal level of diversity. Niebuhr (2009) considers the positive effects to outweigh the negative effects. This is caused by the strong complementary effects of the immigrants (p. 564): “Due to their different cultural backgrounds, it is likely that migrants and native workers have fairly diverse abilities and knowledge. Thus, there might be skill complementarities between foreign and native workers in addition to those among workers of the same qualification levels.” Cultural diversity therefore supports innovation and creativity because it strengthens variety in abilities and knowledge (Alesina and La Ferrara 2005, Niebuhr 2009). A similar argument can be found in Saxenian (2006) and Kerr (2008) who see an amplification of the knowledge spillover pool due to the increasing internationalization of its sources. In this process ethnic entrepreneurs are of crucial importance.

3.2 The role of networks The participation in innovation networks is a source of competitive advantage for firms, regions and countries, in particular in knowledge intensive industries. The performance of innovation networks is strongly related with knowledge mobility in the network. Network structures link the diverse knowledge of agents and serve as channels for the exchange of knowledge. Pyka and Küppers (2002, p. 6) outline: “Innovation networks have three major characteristics: they are like co-ordination devices that enable and support the inter-firm learning by accelerating the diffusion of new knowledge. Second, the development of complementaries becomes possible within networks and finally innovation networks constitute an organizational setting that opens the possibility of exploration of synergies by combination of different technological competencies”.

Networks with immigrants, particularly transnational networks allow for communication and information exchange which without the network linkages would be difficult. This improves the availability of information on skills, technology and capital as well as on potential collaborators. It also facilitates the timely responses that are essential in a highly competitive environment (Saxenian 2005, p. 38).



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