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

Economic complexity reflects a country's ability to combine different types of knowledge to create more sophisticated goods. At the same time, developing countries are experiencing an increase in migration flows of increasingly diverse origin. However, it remains unclear whether this growing diversity is strengthening the productive capacities of these countries. This study analyses whether migratory diversity is a productive factor that stimulates development. Although numerous studies emphasise the role of economic complexity in development, few have examined the effect of migration diversity on this dimension. Focusing on developing countries, this study contributes to the literature by identifying the mechanisms through which migration diversity influences economic complexity. We analyse direct and indirect effects of migration diversity on economic complexity in 74 developing countries over the period 1995-2023, combining 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 indicates indirect effects operating through economic growth, innovation, and human capital. These results suggest that migration contributes to structural transformation rather than simply increasing production, which corroborates capability-based development theories, according to which the heterogeneous recombination of knowledge promotes productive diversification. The results also show that migrant diversity only becomes productive when economies are able to absorb their skills. This has policy implications: recognition of foreign qualifications, matching skills to specific sectors, and complementary training programs are necessary to convert diversity into productive capacity.