Immigration is the key to emerging markets becoming innovation hubs

In 2019, the World Intellectual Property Organization (WIPO) reported that China alone accounted for nearly half of all global patent applications, and India also recorded impressive growth in global patent production. “Asia has become a global hub of innovation,” said WIPO Director-General Francis Harry.

Until a few decades ago, emerging markets accounted for a negligible share of global patent production. But since then, multinational enterprises (MNCs) have begun to innovate more globally. By 2018, according to the U.S. Bureau of Economic Analysis (BEA), the 20-year growth rate of research and development (R&D) of US MFA in foreign countries – an estimated 6 percent – exceeded the growth rate of research and development in foreign countries. The U.S. is estimated at 4 percent. What explains this important shift? Our answer, based on our latest scientific work, is human mobility.

Figure 1 shows patents filed by inventors in 15 countries that make up the sample of the study. Inventors in countries such as Japan and Germany, the leaders in patent production in the group, filed about 80 percent of all patents in the 1995 sample. In 2015, their share halved, while inventors in emerging markets such as China, India, Taiwan, and South Korea received a much higher share of patents in 2015 than in 1995.

Figure 1. Proportion of global patents in individual countries

Source: Human Mobility and the Globalization of Knowledge Production: Causal Evidence for Multinational Enterprises

We document that human mobility is an important factor in this model. We do this by examining whether and to what extent the innovative outcomes of transnational corporations (MNCs) are changing following immigration reforms that soften or strengthen barriers to migration to the country. Our study builds on a new set of data we have collected from an exhaustive list of business-related migration reforms adopted in 15 countries between 1990 and 2016, which we combine with the patenting of more than 30,000 subsidiaries of multinational corporations that innovate. .

Our main results show that business-to-business migration reforms significantly increase the number of patents filed by MNCs within the country, while for business-related migration containment policies, the opposite is true. Negative reforms also reduce the quality of patents filed on several criteria. We further show that negative migration reforms significantly reduce the share of global patents filed by subsidiaries in a country that has implemented such a policy, and that this effect is stronger for the historical leaders of world knowledge production: Japan, Britain and Germany. On the contrary, positive migration reforms significantly increase the share of global patents filed in countries with a low initial share of knowledge production. This finding suggests that policies that affect people’s mobility have contributed to the observed shift in the geography of innovation towards emerging markets.

Figures 2a and 2b visualize the calculations of the back of the envelope based on our main findings. In particular, without positive migration reforms, the countries in our sample would have issued 45 percent fewer patents by the end of the period, and without negative reforms, they would have issued 17 percent more patents than we see. They also show that in the absence of migration reforms, the share of global innovation produced in emerging markets would have risen from 5 percent to just 20 percent between 1990 and 2015, instead of reaching 50 percent as we see in data.

Figure 2a. Trends in the total number of patents are projected

Figure 2a.  Trends in the total number of patents are projected

Figure 2b. Trends in countries with a low initial share of inventions are projected

Figure 2b.  Trends in countries with a low initial share of inventions are projected

Source: Human Mobility and the Globalization of Knowledge Production: Causal Evidence for Multinational Enterprises

Our findings provide compelling evidence that inventor mobility causally contributes to the global production of MNC inventions and shifts the geography of patent production, which has important policy implications. In particular, the serious asymmetry of the consequences of positive and negative reforms underscores that policies that inhibit the mobility of human capital are severely detrimental to local and global knowledge production and may be difficult to reverse through further improvements.

Thus, regardless of whether the slowdown in international mobility was caused by the global COVID-19 pandemic or countries pursuing reforms that curb immigration, it is the world that will pay for much less innovation, one of the most important drivers of economic growth and prosperity. – in the coming years. To reverse the trend, more immigration, not less, is the answer.

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