The Kiel Institute for the World Economy, was founded in 1914 and is affiliated with the Christian-Albrechts-University of Kiel.

German research shows that the rate at which new businesses, especially knowledge-intensive businesses, are founded varies considerably across the various regions in Germany and cultural diversity is a significant factor.

One of the long-known reasons for this is the different distribution across regions of employees in R&D and of employees who are especially highly qualified. However, in a new empirical, cross-sectional study forthcoming in Annals of Regional Science, David Audretsch of the Max Planck Institute in Jena, Dirk Dohse of the Kiel Institute for the World Economy, and Annekatrin Niebuhr of the IAB (The Institute for Employment Research) have now found out that another reason for this is cultural diversity. They show, using the number and distribution of ethnic groups in various regional labor markets to measure cultural diversity, that regions with a high degree of R&D and numerous, different ethnic groups of similar sizes have the highest rates of business start-ups per 10,000 inhabitants.

One of the reasons, in turn, for this finding goes back to an insight derived from urban economics in the late 1970s: the more diverse a population is culturally and in its abilities, the more it will be able to react to the innovative ideas and entrepreneurial opportunities that arise in a knowledge-intensive region. Seeing new technological and organizational knowledge from various perspectives, through different cultural glasses, so to say, increases the chances that new incentives for the commercial use of technologies and new incentives for entrepreneurial activity will arise.

Cultural diversity thus plays a key role in the knowledge spillover theory of entrepreneurship, which states that R&D generates numerous opportunities for entrepreneurship that go far beyond the incumbant companies involved in R&D. R&D generates new knowledge and a pervasively innovative atmosphere in regions that inspires other companies and potential entrepreneurs while providing them the entrepreneurial space to tap into this knowledge and atmosphere.

Exactly how this triggers entrepreneurial activity has not been too clear. Previous research indicated that regional growth is linked to the diversity of the economic landscape. This research measured diversity, however, by sectoral structure.

Audretsch, Dohse, and Niebuhr, on the other hand, are able to show that the cultural/ethnic diversity in a region is more responsible than sectoral diversity for business start-ups. They conclude that “regions characterized by a high level of knowledge and cultural diversity form an ideal breeding ground for technology-oriented start-ups.”