Exporting Creative and Cultural Products: Birthplace Diversity matters! * Gianluca Orefice (CEPII) † Gianluca Santoni (CEPII) ‡ July 7, 2017 Very Preliminary version. Please do not cite or quote Abstract This paper analyzes the effect of birthplace diversity on the exports of creative and cultural goods for 19 OECD countries over the period 1990-2010. By matching the classification of creative and cultural exports released by UNESCO with trade and migration data, we find a strong positive effect of birthplace diversity on the export of creative products. In particular a 10% increase in the birthplace diversity index implies a 4% increase in the export of creative goods (conditioned on total exports). These results are robust across several specifications and shed light on a new potential channel through which migrants can contribute to the export performances of the host countries. In- terestingly, we find that only the diversity of secondary and tertiary educated immigrants contribute to the increase in the export of creative and cultural goods. An instrumental variable approach addresses the potential endogeneity problem and confirms our results. Key Words: Creative Products, International Trade, Birthplace Diversity, Migration. JEL Codes: F14, F16, F22. * Without implicating them, we thank Farid Toubal and Massimiliano Bratti for comments and suggestions. The views expressed in this article are those of the authors and do not reflect those of the CEPII. † CEPII, 113 rue de Grenelle 75007 Paris. Email: gianluca.orefi[email protected]. ‡ CEPII, 113 rue de Grenelle 75007 Paris. Email: [email protected]. 1
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Very Preliminary version. Please do not cite or quote
Abstract
This paper analyzes the effect of birthplace diversity on the exports of creative and cultural goods
for 19 OECD countries over the period 1990-2010. By matching the classification of creative and
cultural exports released by UNESCO with trade and migration data, we find a strong positive
effect of birthplace diversity on the export of creative products. In particular a 10% increase in the
birthplace diversity index implies a 4% increase in the export of creative goods (conditioned on total
exports). These results are robust across several specifications and shed light on a new potential
channel through which migrants can contribute to the export performances of the host countries. In-
terestingly, we find that only the diversity of secondary and tertiary educated immigrants contribute
to the increase in the export of creative and cultural goods. An instrumental variable approach
addresses the potential endogeneity problem and confirms our results.
Key Words: Creative Products, International Trade, Birthplace Diversity, Migration.
JEL Codes: F14, F16, F22.
∗Without implicating them, we thank Farid Toubal and Massimiliano Bratti for comments and suggestions. The views expressedin this article are those of the authors and do not reflect those of the CEPII.†CEPII, 113 rue de Grenelle 75007 Paris. Email: [email protected].‡CEPII, 113 rue de Grenelle 75007 Paris. Email: [email protected].
1
1 Introduction
By showing that birthplace diversity has a positive and significant effect on the economic prosperity (per capita
GDP) of host countries, Alesina, Harnoss & Rapoport (2016) have renewed the interest of scholars on the
economic consequences of cultural diversity. In the present paper we keep the spirit of Alesina et al. (2016) and
analyze the effect of birthplace diversity on a specific component of the economic development of rich countries:
the exports of cultural and creative products.
In many developed countries, cultural and creative products industries account for an important share of
total GDP and employment. According to a recent report by Tera Consulting (2014), creative and cultural
industries (core and non-core)1 represented in 2011 the 6.8% of the total European GDP and the 6.5% of
total employment. A closer look to specific EU members reveals that for some countries creative and cultural
industries are even more important. For example, in UK in 2011, creative and cultural industries represented
the 9% of total GDP and employment. Similarly, for France this type of industries represented the 7.9% of
total GDP and the 6.3% of total employment in 2011. Creative and cultural industries have therefore a crucial
role for the economic development of rich countries. This also reflects in the increasing patterns of creative and
cultural exports over the last twenty years across OECD countries. Figure 1 report the total export of creative
goods for the sample of 19 OECD countries analyzed in the present paper, and shows a clear positive pattern
over time. So, understanding the determinants of exports in creative and cultural good is definitely of interest
for policy makers in developed countries.
This paper analyzes the role of diversity in the birthplace of foreign-born individuals in affecting trade in
creative and cultural goods.2 Indeed, people originating from different countries bring along at destination their
own skills, culture, system of values and problem solving capabilities; which are crucial assets in the industry
of creative and cultural goods. So, diversity in the birthplace of immigrants, and therefore a more disperse
distribution of workers’ types at destination, entails the presence of high-talented workers and the blooming (or
the strengthening) of innovative and creative industries (as suggested by Florida (2002)).3
In a more formal way, Lazear (1999) proposes a model in which the cost of diversity in production teams (i.e.
coordination costs) might be over-compensated by production complementarities: ”Disjoint and relevant skills
create an environment where the gains from complementarities can be significant”. In the same vein, Hong &
Page (2001) theoretically demonstrate that a team of cognitive diverse individuals with limited abilities might
perform better than a high-ability group of cognitive homogeneous individuals. Yet, Maggi & Grossman (2000)
1Please refer Tera Consulting (2014) for a detailed definition of core and non-core cre-ative and cultural industries: http://www.teraconsultants.fr/medias/uploads/pdf/Publications/2014/
2014-Oct-European-Creative-Industry-GDP-Jobs-full-Report-ENG.pdf. In the present paper we adopt the UNESCOclassification of creative product. See section 3.2 for a detailed description.
2We define immigrants as foreign-born individuals.3The seminal paper by Florida (2002) advanced the hypotheses that the presence of creative professions (bohemians) across US
cities has a positive effect on innovative and high-technology industries
The subscripts i, k and t respectively denote the exporting country, the HS 2-digit sector and the year. The
dependent variable yikt is the exports in creative and cultural products of country i, sector s, time t. In order to
keep the zeros after the log transformation, we simply impose the Ln(y)ikt being equal to zero when yikt is zero.
Notice that the number of zeros in the data is greatly reduced (0.42%) because we have country-sector specific
data for rich countries only (the fact that we do not use bilateral trade data reduces a lot the concern on zero
trade flows). However we also use a PPML estimation as proposed by Silva & Tenreyro (2006) to control for
the possible heteroscedasticity in trade data. In the PPML estimations we use the export in creative products
is levels rather than in log.
The main explanatory variable is the log of birthplace diversity index BDit as defined in section 2. The set
of control variables Xit includes: (i) the log of total exports of country i in sector k to control for the overall
export dynamics of the country-sector; (ii) the number of countries of origin for migrants residing in country
i; (iii) the total population in the country to control for the size effect on exports (as done in Alesina et al.
(2016)), (iv) the share of natives over the total population in the country. The inclusion of the share of natives
over total population is important as it controls for the size effect of migration. By doing so we can disentangle
the size from the fractionalization (diversity) of immigrants in the destination country - as in Alesina et al.
(2016) and Trax et al. (2015). The inclusion of the share of natives allows us to test whether there is any direct
effect of foreign-born population on the export of creative goods. If our theoretical discussion reported in the
5The birthplace diversity index for immigrants used in Alesina et al. (2016) can be expressed as follows: BDit = 1−∑J
j=1 s2ijt.
See Alesina et al. (2016) equation (8).6This choice only implies caution in the interpretation of results, as an increase in our BD index represents a reduction in the
diversity.7We adopt a log-log specification because it is standard in the gravity model for trade literature. This also implies the interpre-
tation of regression coefficients directly as elasticities.
5
introduction is true, we do expect a null coefficient on the share on native. Indeed, what matters for the export
performances of creative products is the fractionalization of cultures and not the total amount of immigrants.8
In a robustness check reported in the appendix we include per capita GDP as an additional covariate to control
for the income level of the exporting country.9
Any sector specific shock affecting the export of creative products in a given year (i.e. productivity shock,
sector-specific innovation or technological improvement etc.) is captured by sector-year fixed effects, θkt, in-
cluded in all estimations. The inclusion of country-sector fixed effect, θik, allows to control for any country-sector
specific variable affecting the export of creative goods (i.e. sector comparative advantage, average level of de-
velopment of the country, average expenditure in research and development in a country, etc.). The inclusion
of country-sector fixed effects implies the interpretation of our results in deviations from country-sector mean
(within estimator). While the dependent variable (export of creative products) is country-sectors-year specifics,
our main explanatory variable is country-year specific. For this reason standard errors are always clustered by
country-year in all estimations.
3.1 Endogeneity
A potential issue to be addressed is endogeneity. The omitted variable concern here is reduced as we include
country-sector fixed effects capturing all the unobserved destination specific factors affecting the settlement
of immigrants in the host countries (i.e. average income level, immigration policy and any country specific
economic factor attracting immigrants). Nevertheless an unobserved country-year specific shock might affect
contemporaneously the export of creative goods and the settlement of immigrants across destinations. Moreover,
reverse causality problem might produce biased OLS estimations if changes in the export of creative goods affect
the labor demand in the country, and in particular the labor demand for high-skilled (immigrant) workers. We
address these endogeneity concerns by adopting an Instrumental Variable approach (2SLS).
Many papers in the migration literature adopt the shift share instrument a la Card (2001) to solve the
endogeneity problem of immigrant settlement.10 Unfortunately, in our framework, the total bilateral flows
of immigrants used to build the shift-share instrument would hardly be exogenous (as plausibly affected by
destination-year specific export performances and labor demand). So, we introduce an alternative instrumental
variable, in the vein of Card (2001), but based on the predicted supply-driven number of migrants in each
destination (exporting) country i. Basically, we run a structural gravity model that predicts the bilateral stocks
8Immigrants coming from the same country have homogeneous culture and thus can be assumed of homogeneous ability. In thisrespect they do not spread the distribution of workers’ ability at destination.
9We find somehow odd the inclusion of both population and per capita GDP in the same specification, for this reason we reportthe augmented specification including per capita GDP only in the appendix section. However our baseline results do not change.See appendix table A1.
10See for example Ottaviano & Peri (2006); Peri & Requena-Silvente (2010); Card (2009).
6
of migrants (from IAB)11 using: (i) destination-year fixed effects, (ii) origin-year fixed effects, (iii) a set of
country-pair specific geographic variables (distance, common border, language and colonial past), and (iv) the
share of immigrants coming from a specific origin in 1980, (v) and its interaction with the total stock of migrants
from a given country - ln(Immi)jt12. We use a PPML estimator to account for the many zeros in bilateral
migration stocks and estimate the following equation:
where the destination-year fixed effects (γit) capture the pull factors of bilateral migration, the origin-year fixed
effects (γjt) account for the origin-year specific push-factors affecting the outflow of migrants, and the set of
gravity type covariates control for country-pair specific migration cost. The inclusion of the share of immigrants
in i coming from j in 1980 (ShareImmiij,1980) and its interaction with ln(Immi)jt mimic the Card (2001) idea
that new immigrants tend to settle in destinations where previous immigrants from the same origin already
reside. The main advantage of this specification relies on the fact that Geographyij will contribute to predict
the bilateral stock of migrants also for those origin-destination pairs ij having zero migrants in the base year
of ShareImmiij,1980. From equation (3) we take the predicted value Immiijt (fit of the regression) from which
we exclude the destination-year fixed effect component:
AdjImmiijt = Immiijt − γit. (4)
In this way, our instrumental variable does not include the demand-driven component of bilateral migration,
which is at the origin of the endogeneity concern in our framework (and the origin of the main criticisms on the
shift-share instrument). Finally, we build the birthplace concentration index as in (eq.1) using AdjImmiijt :
IVit =
J∑j=1
(AdjImmiijt∑J
j=1AdjImmiijt
)2
(5)
Notice that
(AdjImmiijt∑J
j=1AdjImmiijt)
)2
is simply the share in the total population of supply driven predicted number
of migrants in country i originating from j. In this way the birthplace diversity index is built on pure supply-
driven migration component and can be safely used as an Instrumental Variable, IVit. The exclusion restriction
assumption here is that BD index based on supply-driven migration stocks (i.e. IVit) affects the export of
creative goods only through the BD index based on total migration stocks. This is tested in table A2 where we
show that IVit has not direct effect on the export of creative goods.
11See next section for more details on data sources.12Note that the direct effect of ln(Immi)jt is captured by γjt.
7
As a robustness check, we use the 5-year lag of the BD index as an instrumental variable (in this way we
can also test an overidentified model and having a Sargan test for the validity of the IVs). The idea is that
the composition of migrant population is persistent over time, so the lagged value of the diversity index be a
good proxy for the current value of diversity index (relevant IV). Moreover, any contemporaneous shock in the
exports of creative products cannot be related with past values of the diversity index (IV validity).
3.2 Data and Descriptive evidence
Our calculation of the birthplace diversity index relies on IAB bilateral migration stocks data. The IAB data
cover information for 20 OECD destination countries by country of origin (nationality) and educational level
over the period 1980-2010 (5-year intervals). The information on the education level of immigrants (primary,
secondary and tertiary) allows us to test also the effect of birthplace diversity by skill level.13 For the calculation
of the concentration index we consider migrants as foreign-born individuals aged 25 years and older. A potential
drawback from using IAB data is that only the nationality of the individuals is reported. Naturalized foreign-
born individuals and second generation immigrants do not appear as ”immigrant” in out data. So, our measure
of birthplace concentration underestimates the true degree of cultural diversity.
As a robustness check we use bilateral migration flows rather than stocks to compute the concentration
index. In this case we rely on Abel & Sander (2014) dataset containing information on bilateral migration flows
for a full matrix of 178*178 origin-destination combinations in the years 1995, 2000, 2005 and 2010.14 Bilateral
migration stocks (and flows) are then used to compute a country-year specific birthplace diversity measure (see
eq. 1), that can be merged with trade data on the export of creative and cultural goods.
In order to calculate the amount of exports in creative and cultural goods, we combine trade data from
BACI (CEPII) with three recent HS-based classifications of creative and cultural goods. The first is released by
the UNESCO and includes only core creative industries (here used as baseline). The second is also released by
UNESCO and includes both core and non-core creative industries (robustness check). The third classification
we use in the paper is released by UNCTAD (robustness check). Trade data from BACI provide information
on the value of export flows (in USD) for a complete set of exporting and importing countries in the period
1989-2015 by product HS 6-digit level. The product classification is then used to identify whether a specific HS
6-digit code belongs to the category of ”creative and cultural exports”. We can compute accordingly the total
amount of exports in creative and cultural goods by country-sector(HS2)-year, which is used as main dependent
variable in our empirical exercise. Notice that in our regression sample we include only the HS 2-digit sectors
containing at least one HS 6-digit product classified as ”creative or cultural”.
13Dataset available here: http://www.iab.de/en/daten/iab-brain-drain-data.aspx.14This dataset is available here: http://science.sciencemag.org/content/sci/suppl/2014/03/27/343.6178.1520.DC1/
Abel-Database-s2.xlsx. The main advantage for using this dataset, with respect to other existing sources (e.g. IMD-OECD), isthe balanced nature of the data including all other non-OECD countries as destinations.
When we merge the trade data in cultural products (UNESCO core classification) with the BD index based
on the stock of migrants (baseline estimations), we end up with a sample of 1425 observations: 19 exporting
countries,15 15 HS 2-digit sectors, and 5 years (1990, 1995, 2000, 2005 and 2010). See table 1 panel A for
in-sample descriptive statistics. When we use the UNESCO (core plus non-core) classification the number
of observations slightly increase (1615 observations) because two additional HS 2-digit sectors include non-
core creative products (see table 1 panel B). When we use the UNCTAD classification for creative goods, the
number of observations increases because, according with the UNCTAD classification, there are 29 HS 2-digit
chapters including creative products. See table 1 panel C for in-sample descriptive statistics when UNCTAD
classification is used to define creative products. Importantly, our results are robust to the three classifications
used to define creative exports. Differently, when we merge trade data with the BD index based on the flows
of migrants (robustness check), we have more observations as the sample of exporting countries becomes larger
(178 exporting countries).
In figure 3 we show the simple correlations between countries’ exports of creative products (average by
country across sectors) and their diversity in birthplace of immigrants (HH index). For the years 1995, 2000,
2005 and 2010 the relation is always negative, suggesting a positive correlation between the export of creative
products and the diversity in the birthplace of immigrants.
4 Results
4.1 Baseline Results
OLS results on equation 2 are presented in table 2. Across all specifications the concentration in the birthplace
of immigrants has always a negative and significant effect on the export of creative and cultural goods. This
means that diversity among immigrants has a positive impact on the export of creative goods. In particular,
using our preferred specification in column 3, a 10% decrease in the index of birthplace concentration implies
a 4% boost in the export of creative and cultural goods. Notice that our results hold for both the UNESCO
and the UNCTAD classification of creative and cultural goods (see columns 3-5). As expected, the share of
natives over total population has no effect on the export of creative products, confirming the idea that it is the
fractionalization of origins that matters for the export of creative goods and not the size of the foreign-born
population. Our baseline results are robust to the inclusion of per capita GDP among covariates. See table A1.
In table 3 we show 2SLS results using the instrumental variables described in section 3.1. Column 1 shows
estimation results using the IV based on the predicted supply-driven migration stocks, while in column 2 we use
a 5-year lag of the BD index as an instrumental variable. In columns 3-5 we employ an overidentified model an
15Luxembourg is not included because full of missing observations for trade data.
9
put both the IVs in the first stage. The relevance of the two IVs is suggested by the first stage coefficients at the
bottom of the table. In all specifications the instruments are good proxies for the (potential) endogenous BD
index. The F-stat of the first stage are all considerably above the rule of thumb of 10 and remove any problem
of weak instruments. The Sargan tests showed in columns 3-5 prove the validity of our IVs (orthogonality).
Finally, in order to support the exclusion restriction of our IVs (as suggested by Conley, Hansen & Rossi (2012)),
we estimate equation (2) by adding the two IVs (in turn and then together) as additional covariates to test
whether they have a direct effect on the export of creative goods. The exclusion restriction assumption is
satisfied if the IVs affect the export of creative goods only through their influence on the endogenous regressor
(and thus when they have no direct effect on the export of creative goods). As expected, none of the IVs have
a significant direct effect on the export of creative goods, supporting the validity of the exclusion restriction.
See table A2. The second stage results of the 2SLS approach are reported at the top of table 3 and strongly
confirm what discussed above. The diversity in the birthplace of migrants has a positive and significant effect
on the export of creative goods (no matter the classification used to identify creative products). In particular,
a 10% decrease in the BD index (i.e. increase in birthplace diversity), implies a 4.4% increase in the export of
creative products - see column 3 in table 3.
In table 4 we show a first robustness check using a PPML estimator to properly address the zero trade flow
problem. Our result perfectly holds when we use the UNESCO classification (both core and core plus-non-core
classification) - see columns 1 and 2. The sign of the coefficient is in line with the expectation also for the
UNCTAD classification; but it is estimated with error (coefficient not significantly different from zero).
In table 5 we show a robustness check using the alternative definition of birthplace diversity adopted by
Alesina et al. (2016) - one minus di Herfindahl-Hirschmann index applied to the population of immigrants.
Results are qualitatively identical to those obtained using our BD index, but with the opposite sign (as the
measure proposed by Alesina et al. (2016) is a direct measure of diversity). In table A3 we show 2SLS results
using the birthplace diversity index as in Alesina et al. (2016). As done for our baseline estimations, we use two
IVs: (i) the diversity index (1-HH) based on the supply driven predicted migration stocks, and (ii) a five-year
lag of the diversity index (1-HH). In all specifications (for the three classifications of creative goods) an increase
in the birthplace diversity index boosts the exports of creative goods.
4.2 Robustness check using migration flows
The main drawback of the IAB data on bilateral migration stocks is the limited sample of destination countries
(19 OECD) - implying the validity of the diversity-creative export nexus for a sub-sample of rich countries. In
this section we solve this limitation and enlarge the set of destination (exporting) countries by using Abel &
Sander (2014) data on the bilateral migration flows to/from 178 countries. The construction of the BD index
10
does not change, we simply apply equation (1) to an alternative migration dataset including a bigger sample of
destination countries.
Results from this robustness check are reported in table 6 and show that even after considering a wider set
of exporting countries (both developed and developing countries), the positive effect of birthplace diversity on
the export of creative goods holds. But with a smaller coefficient, meaning that the inclusion of poor countries
dilutes the nexus. This suggests that the effect of birthplace diversity in boosting the export of creative goods
is particularly important for developed countries.
4.3 Results by skill level
As discussed in the introduction, the nexus between diversity and the export of creative goods is supposed to
be particularly strong for high-talented workers (see Florida (2002)). The highest contribution to the ”creative”
process in creative and cultural goods is supposed to be generated by tertiary educated individuals. So, we do
expect diversity among high-skilled immigrants having the strongest effect on the export of creative goods. To do
this, we benefited from the information on the education level of migrants provided by IAB data and computed
the BC index (as in eq.1) by education level. Baseline specification results by education level are reported in
table 7. We find negative and significant coefficient for tertiary and secondary educated migrants’ concentration,
confirming the intuition that what matters in affecting the export of creative goods is the diversity in the group
of high-talented workers. Moreover, coherently with the intuition, the coefficient for tertiary educated is larger
than that on secondary educated immigrants.
4.4 Results by macro-sector
Finally, in table 8 we report baseline estimation results by macro-sector. Indeed, the diversity in the birthplace
of immigrants may be of a particular interest for some sectors and less relevant for others. While the estimated
specification does not change (see eq. 2), we needed to adapt the set of fixed effects included in the regression
in order to have a sufficient level of variability in the data to identify our coefficient of interest. We therefore
include only country and year fixed effects in sector specific regressions. Interestingly, the strongest contribution
of birthplace diversity in boosting the export of creative goods is in the sector of: (i) Plastic and Rubbers, (ii)
Wood and Wood products and (iii) Miscellaneous. Notice that the miscellaneous macro-sector includes HS
chapters from 90 to 97, i.e. optical, photographic and cinematographic products, clocks and watches, musical
instruments, toys and games, works of art.
11
5 Conclusion
This paper proposes a new channel through which the diversity in the birthplace of immigrants can affect the
economic performance of the receiving country. By using a sample of 19 OECD developed countries over the
period 1995-2010, we find overwhelming evidence of the positive effect of immigrants’ birthplace diversity on
the export of creative and cultural products. This holds in particular for high- and medium-skilled immigrants.
More specifically, according to our preferred specification, a 10% increase in the diversity of immigrants (or
reduction in their concentration) increases the export of creative goods by 4%. This result, along with the
important role that the industry of creative and cultural good has in developed countries, suggests the policy
relevance of the present paper. Immigrants from a more diverse set of origin countries may represent a way of
boosting the export of creative and cultural products, which have a central role for the economic prosperity of
developed countries.
12
Tables and Figures
Figure 1: Exports in creative goods and HH index of immigrants’ birthplace. OECD countries, 1990-2010.
Note: The blue bars report the total amount of exports in cultural and creative goods for the full sample of exporting countries inour data. The red line refers to the average HH index of immigrants’ birthplace across exporting countries.
Source: Authors’ calculation on BACI and IAB data.
13
Figure 2: Concentration of immigrants’ birthplace in Ireland, Germany and Denmark in 2010. Lorenz curves.
Source: Authors’ calculation on IAB data.
14
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15
Table 1: In-sample descriptive statistics. Estimation samples based respectively on UNESCO core, UNESCOand UNCTAD classification.
Obs Mean Std DevPanel A UNESCO core classificationExports creative (log) 1425 9.01 2.91Birthplace Diversity (log of HH) 1425 -2.46 0.60Tot exports (log) 1425 12.25 2.37Population (log) 1425 16.56 1.16Num. of origins 1425 157.34 39.02Share of Natives 1425 0.91 0.05Panel B UNESCO classificationExports creative (log) 1615 9.69 3.11Birthplace Diversity (log of HH) 1615 -2.46 0.60Tot exports (log) 1615 12.58 2.51Population (log) 1615 16.56 1.16Num. of origins 1615 157.35 39.02Share of Natives 1615 0.91 0.05Panel C UNCTAD classificationExports creative (log) 2755 9.25 2.70Birthplace Diversity (log of HH) 2755 -2.46 0.60Tot exports (log) 2755 11.86 2.57Population (log) 2755 16.57 1.16Num. of origins 2755 157.35 39.02Share of Natives 2755 0.91 0.05