Migration diversity and economic complexity in developing countries: Direct and indirect effects through growth, innovation, and human capital

Abstract

Economic complexity reflects a country's ability to combine diverse forms of knowledge to create more sophisticated goods. At the same time, developing countries are experiencing increasing migration flows from more heterogeneous origins. However, it remains unclear whether this growing diversity enhances the productive capacities of these countries. This study investigates whether migratory diversity constitutes a productive factor that enhances economic complexity. While the literature extensively examines economic complexity, limited attention has been paid to the role of migration diversity. Focusing on developing countries, the paper identifies the mechanisms through which migration diversity influences economic complexity. This study analyses the direct and indirect effects of migration diversity on economic complexity in 74 developing countries over the period 1995-2023, using a Structural Equation Model (SEM) with FGLS and IV-2SLS estimates for robustness. The results indicate that migration diversity has a positive and statistically significant direct effect on economic complexity. Furthermore, mediation analysis reveals indirect effects operating through economic growth, innovation, and human capital. These results suggest that migration contributes to structural transformation rather than simply increasing production. This supports capability-based development theories, which emphasise that the heterogeneous recombination of knowledge promotes productive diversification. The results also show that migrant diversity only becomes productive when economies possess sufficient absorptive capacity to utilise migrants' skills. This has policy implications: recognition of foreign qualifications, matching skills to specific sectors, and complementary training programmes are necessary to convert diversity into productive capacity.