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Cultural Diversity, Innovation, and Entrepreneurship: Firm-level Evidence from London

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  • Max Nathan
  • Neil Lee

Abstract

A growing body of research is making links between diversity and the economic performance of cities and regions. Most of the underlying mechanisms take place within firms, but only a handful of organization-level studies have been conducted. We contribute to this underexplored literature by using a unique sample of 7,600 firms to investigate links among cultural diversity, innovation, entrepreneurship, and sales strategies in London businesses between 2005 and 2007. London is one of the world's major cities, with a rich cultural diversity that is widely seen as a social and economic asset. Our data allowed us to distinguish owner/partner and wider workforce characteristics, identify migrant/minority-headed firms, and differentiate firms along multiple dimensions. The results, which are robust to most challenges, suggest a small but significant “diversity bonus” for all types of London firms. First, companies with diverse management are more likely to introduce new product innovations than are those with homogeneous “top teams.” Second, diversity is particularly important for reaching international markets and serving London's cosmopolitan population. Third, migrant status has positive links to entrepreneurship. Overall, the results provide some support for claims that diversity is an economic asset, as well as a social benefit.
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  • Max Nathan & Neil Lee, 2013. "Cultural Diversity, Innovation, and Entrepreneurship: Firm-level Evidence from London," Economic Geography, Clark University, vol. 89(4), pages 367-394, October.
  • Handle: RePEc:bla:ecgeog:v:89:y:2013:i:4:p:367-394
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    Cited by:

    1. Neil Lee & Andrés Rodríguez-Pose, 2014. "Innovation in Creative Cities: Evidence from British Small Firms," Industry and Innovation, Taylor & Francis Journals, vol. 21(6), pages 494-512, August.
    2. Ceren Ozgen & Thomas de Graff, 2013. "Sorting out the impact of cultural diversity on innovative firms. An empirical analysis of Dutch micro-data," Norface Discussion Paper Series 2013012, Norface Research Programme on Migration, Department of Economics, University College London.
    3. Kemeny, Thomas, 2013. "Immigrant diversity and economic development in cities: a critical review," LSE Research Online Documents on Economics 58458, London School of Economics and Political Science, LSE Library.
    4. John V. Winters, 2017. "Do Native STEM Graduates Increase Innovation? Evidence from U.S. Metropolitan Areas," Economics Working Paper Series 1714, Oklahoma State University, Department of Economics and Legal Studies in Business.
    5. Nathan, Max, 2013. "The Wider Economic Impacts of High-Skilled Migrants: A Survey of the Literature," IZA Discussion Papers 7653, Institute for the Study of Labor (IZA).
    6. Max Nathan, 2013. "Top Team Demographics, Innovation and Business Performance: Findings from English Firms and Cities 2008-9," SERC Discussion Papers 0129, Spatial Economics Research Centre, LSE.
    7. Longhi, Simonetta, 2013. "Impact of cultural diversity on wages, evidence from panel data," Regional Science and Urban Economics, Elsevier, vol. 43(5), pages 797-807.
    8. Nikos Bozionelos & Thomas Hoyland, 2014. "Cultural diversity at the top: Does it increase innovation and firm performance?," Post-Print hal-01060334, HAL.
    9. Nathan, Max, 2014. "Top Team Diversity and Business Performance: Latent Class Analysis for Firms and Cities," IZA Discussion Papers 8462, Institute for the Study of Labor (IZA).
    10. Neil Lee & Andrés Rodríguez-Pose, 2014. "Innovation in creative cities: Evidence from British small firms," Papers in Evolutionary Economic Geography (PEEG) 1422, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Nov 2014.
    11. Neil Lee, 2013. "Cultural Diversity, Cities and Innovation: firm Effects or City Effects?," SERC Discussion Papers 0144, Spatial Economics Research Centre, LSE.
    12. Chengyu Li & Mark Wang & Jianghao Wang & Wenjie Wu, 2016. "The Geography of City Liveliness and Land Use Configurations: Evidence from Location-Based Big Data in Beijing," SERC Discussion Papers 0201, Spatial Economics Research Centre, LSE.
    13. Stephan Brunow & Bastian Stockinger, 2013. "Establishments' and Regions' Cultural Diversity as a Source of Innovation: Evidence from Germany," Norface Discussion Paper Series 2013022, Norface Research Programme on Migration, Department of Economics, University College London.
    14. Tiia Vissak & Xiaotian Zhang, 2014. "Chinese immigrant entrepreneurs’ involvement in internationalization and innovation: Three Canadian cases," Journal of International Entrepreneurship, Springer, vol. 12(2), pages 183-201, June.
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    17. Winters, John V., 2014. "Foreign and Native-Born STEM Graduates and Innovation Intensity in the United States," IZA Discussion Papers 8575, Institute for the Study of Labor (IZA).
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    22. Wallin, Tina, 2017. "An empirical study of firms’ absorptive capacity and export diversification," Working Paper Series in Economics and Institutions of Innovation 452, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.

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