Immigration and Innovation in Finnish Manufacturing Firms

This study examines the relationship between immigration and firmlevel innovation in the Finnish manufacturing sector. The analysis leverages unique matched data, including employees’ immigration status, firm-level patenting, process and product innovation activities, and innovation inputs spanning the 2000–2018 period. To address the potential endogeneity of a firm’s immigrant employment, an instrumental variables approach is employed using the historical geographic distribution of immigrants in the region where the firm is located. The results reveal that an increase in immigrant employment positively influences process and product innovation, and skilled foreign knowledge boosts the number of patent applications. Additionally, immigration leads to reduced external R&D expenditures, indicating that immigrant workers may substitute outsourced innovation inputs. The study also finds no evidence that immigration adversely affects native workers’ employment in Finnish firms. By contrast, it may benefit natives with complementary skills.