This study examines the relationship between immigration and firm-level innovation in the Finnish manufacturing sector. The analysis exploits unique matched data linking employees’ immigration status with firm-level patenting, process and product innovation activities, and innovation inputs. To address the potential endogeneity of firms’ immigrant employment, a newly developed instrumental variables approach is applied, using the predicted historical geographic distribution of immigrants as an instrument. The results show that immigrant employment positively affects firms’ patenting activity and the number of R&D workers, with these effects being statistically significant only among more productive firms. Furthermore, firms with a higher concentration of non-native employees exhibit stronger immigration-innovation effects, suggesting that the mechanisms linking immigration and innovation may depend on the scale and stage of immigration. Finally, the study finds that immigration enhances firm growth and boosts native employment.
Research Policy, Vol. 55, Issue 10, 3 September 2026 (online).
