Regional cultural diversity and firm innovation
2025
Niebuhr, Annekatrin | Peters, Jan Cornelius
There is extensive literature on the relationship between regional diversity and the economic performance of workers, firms, and regions. This paper considers the effects of regional cultural diversity on firm level innovation. The identification of corresponding effects involves important econometric issues. Two econometric problems arise in particular with regard to the impact of cultural diversity: the potential endogeneity of population diversity and composition effects, i.e., the sorting of specific firms into culturally diverse locations. Against this background, we critically review the previous evidence on effects of regional diversity on the economic outcomes of firms, with a focus on innovation. We complement the literature survey with an empirical analysis on the importance of composition effects for the correlation between cultural diversity of German regions, specifically regional R&D employment, and firm innovation. We make use of a multilevel panel data set that provides detailed information on German establishments for the period 1999 to 2010. A comparison of models with different sets of control variables and fixed effects enables us to evaluate the significance of sorting effects, i.e., whether the correlation between the cultural diversity of regions and firm innovation is due primarily to innovative firms that choose to locate in culturally diverse regions. Our results suggest that, in fact, sorting of innovation-prone firms into specific locations seems to be more important to explain spatial disparities in innovation output than effects of regional diversity on firm innovation.
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出版者 Oxford University Press