Scandinavian Working Papers in Economics

Discussion Papers of Business and Economics,
University of Southern Denmark, Department of Business and Economics

No 2/2014: Ethnic Diversity and Firms' Export Behavior

Pierpaolo Parrotta (), Dario Pozzoli () and Davide Sala ()
Additional contact information
Pierpaolo Parrotta: Department of Economics, Postal: School of Business and Economics, Maastricht University, 6200 MD Maastricht, Netherlands
Dario Pozzoli: KORA, Det Nationale Institut for Kommuners og Regioners Analyse og Forskning, Postal: Aarhus University and IZA
Davide Sala: Department of Business and Economics, Postal: University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark

Abstract: Selling internationally requires products that resonate with an international customer base and therefore an approach to markets that is in keeping with diverse cultures (i.e., relational capital). As emphasized by international business studies, this relational capital is in turn related to the successful teaming of a diverse workforce, as this process teaches employees to operate in multicultural environments. This knowledge becomes like an intangible asset to which firms can resort, also when engaging in international transactions. We explore this channel empirically, investigating the impact of workforce diversity on firms' exporting performances and find that ethnic diversity further justifies firms' different presence in international markets. Since hiring is not a random practice, and firms ultimately select into ethnically different labor forces, we exploit the EU enlargement of 2004 to instrument for the diversity of the pool of workers locally recruitable. Because migrants tend to settle where the attitude toward them is most favorable, we use the median voter's political ideology at firm's location to measure the hostility at time of settlement. This gives our instrument spatial variation besides time variation.

Keywords: Ethnic diversity; export; EU enlargement; median-voter ideology

JEL-codes: D22; F14; F15; F16; J15

68 pages, January 30, 2014

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