Immigration and Innovation: Two Sides of the Same Coin

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by Luis Pablo de la Horra

Immigration is a controversial issue in most developed countries. Most people continue to hold what economist Bryan Caplan calls an anti-foreign bias, i.e., a tendency to underestimate the economic benefits of interaction with foreigners. It is hardly surprising, therefore, that anti-immigration policies have so much popularity among voters.

This anti-foreign bias has been amplified in the last years with the emergence and strengthening of anti-immigration parties and politicians on both sides of the Atlantic. Common objections put forward by populists against immigration-friendly policies are related to the net fiscal impact of immigrants (immigrants being a burden to the welfare state) or labor market outcomes (immigrants pushing wages down or taking natives’ jobs).

Unfortunately for anti-immigration advocates,  the evidence suggests that, contrary to the above arguments, immigration has a positive impact not only on migrants themselves (their living standards increase considerably when moving abroad), but also on receiving countries. One of these benefits is the effect that immigrants have on innovation.

Innovation and technological progress are key to economic growth. Since the onset of the Industrial Revolution, capitalism has provided the right incentives for people to develop and expand their innate creative capacity. This, in turn, has resulted in new inventions and new ways of doing things that have improved the living standards of billions of people all over the world.

In fact, as pointed out by Deirdre McCloskey, long-term economic growth cannot be explained solely by things like capital accumulation, private property rights, or free trade. These are necessary, but not sufficient conditions. Ideas, the raw material from which any innovation is made, are what matter.

But how is immigration linked to innovation? At first sight, the relationship is far from obvious. Yet it makes perfect sense. More immigrants imply an increasing population, which in turn leads to more people coming up with new innovations that raise productivity and bolster economic growth. As noted by 2019 Nobel-awarded Michael Kremer,

“the cost of inventing a new technology is independent of the number of people who use it. Thus, holding constant the share of resources devoted to research, an increase in population leads to an increase in technological change”

This isn’t just theory. Kremer shows that, throughout history, those societies with higher initial populations had faster growth rates of both population and technology. Given today’s low birth rates in developed countries, less restrictive immigration policies can help boost economic growth via the population effect.

However, the relationship between immigration and innovation goes beyond the population effect. Numerous empirical studies point to other mechanisms whereby immigrants, especially skilled workers, positively impact innovation and economic growth. According to Ufuk Akcigit (University of Chicago), John Grisby (University of Chicago) and Tom Nicholas (Harvard Business School),

“[During the 19th and 20th centuries] immigrant inventors contributed heavily to new idea creation. Our evidence aligns with the view that growth in an economy is determined by its ablest innovators, regardless of national origin. The movement of high-skilled individuals across national borders therefore appears to have aided the development of the United States as an innovation hub.”

Similarly, NBER’s Jennifer Hunt concludes that more immigrant college graduates result in patents per capita increasing substantially. In effect, even though immigrants represent less than 18 percent of the US workforce, they obtain near 30 percent of high-quality patents. The corollary is simple: immigrants are more likely to introduce new innovations that ultimately result in cheaper and higher-quality goods and services, improving the standards of living for all citizens in a country.

Immigration and innovation are two sides of the same coin. If developed countries don’t want to fall into the low-growth trap indefinitely, they should carry out reforms aimed at reducing the bureaucratic barriers that now prevent millions of would-be migrants all over the world from leaving their countries in search of a better life. The future of economic growth depends on it.

Luis Pablo de la Horra is a Ph.D. Candidate in Economics at the University of Valladolid in Spain. His work has been published in several media outlets, including The American Conservative, CapX and Intellectual Takeout.


The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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