Does Birthplace Diversity Affect Economic Complexity? Cross-country Evidence

Can immigration-driven diversity help countries develop more sophisticated economies? This paper investigates the relationship between the diversity in the birthplaces of a country's immigrants and its level of economic complexity—a measure that captures a nation's accumulated productive capabilities reflected in the sophistication and diversification of its export basket.

The dominant interpretation for why birthplace diversity boosts economic performance has to do with skill complementarity: immigrants who grew up in different environments, went to different school systems, and learned different trades bring complementary knowledge that expands a country's ability to compete in a broader set of economic activities. We put this theory to the test using bilateral migration data for 100 countries over 1990-2000, combined with the Economic Complexity Index.

To address endogeneity concerns—more complex economies might simply attract more diverse immigrants—we employ two instrumental variable strategies: a pseudo-gravity model predicting bilateral migration stocks and a shift-share approach using 1970s migration settlement patterns. Both methods support a causal interpretation. The mechanism appears to operate through export diversification: birthplace diversity expands the range of products a country exports competitively, rather than making existing exports less ubiquitous.