How Cultural Diversity Drives Innovation

John Stuart Mill once wrote:

It is hardly possible to overrate the value…of placing human beings in contact with persons dissimilar to themselves, and with modes of thought and action unlike those with which they are familiar….Such communication has always been, and is peculiarly in the present age, one of the primary sources of progress.

Mill had in mind the civilizing force of commerce but the idea is far more general. My colleague Jonathan Schulz with Max Posch and Joe Henrich have a novel and important test of the idea in a paper forthcoming in the JPE: How Cultural Diversity Drives Innovation (WP; SSRN). They show that the more diverse a county, as measured by surnames, the more ideas and the more novel ideas were patented in that county.

We show that innovation in U.S. counties from 1850 to 1940 was propelled by shifts in the local social structure, as captured using the diversity of surnames. Leveraging quasi-random variation in counties’ surnames—stemming from the interplay between historical fluctuations in immigration and local factors that attract immigrants—we find that more diverse social structures increased both the quantity and quality of patents, likely because they spurred interactions among individuals with different skills and perspectives. The results suggest that the free flow of information between diverse minds drives innovation and contributed to the emergence of the U.S. as a global innovation hub.