Cultural diversity of internal migrants and firm innovation in China

This study examines how internal migration – induced cultural diversity affects firm innovation in China. Departing from prior research focused on international migration, we construct a city-level diversity index based on migrants’ provincial origins to capture intra-national cultural heterogeneity. Linking census microdata with firm-level patent data, we find that a one-unit increase in urban cultural diversity raises patent applications per firm by 4.53%. Using a shift-share instrumental variable strategy, we confirm the causal relationship. The effect is stronger for larger firms, high-tech sectors, and firms in smaller cities. Mechanism analysis reveals that innovation gains are driven mainly by high-skilled migrant diversity and are concentrated in invention and utility model patents, indicating that cultural diversity enhances innovation primarily through production-side channels- such as knowledge spillovers and cognitive complementarities- rather than through consumer demand. These findings provide firm-level evidence that internal migration can generate meaningful cognitive diversity and strengthen innovation capacity within a unified institutional context.