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Economic and Business Effects of Ethnic Diversity in Western European Cities

July 2017

Western European cities have long been a major draw for migrants from near and far, seeking to secure better life prospects for themselves and their families. In purely economic terms, migration stands to benefit cities as well, specifically by enhancing the local standard of living. Furthermore, businesses can take advantage of market opportunities since the foreign origin of migrants represents an additional factor in the differentiation strategy.

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International migration has been shaping Western Europe’s cities

During 2006-2016, 20 out of 32 leading metropolises in Western Europe were growing population-wise predominantly due to net migration. Furthermore, an influx of foreign citizens has been especially high in 11 out of those 20 cities.

The number of foreign citizens is up across the region’s key metropolises

The number of foreign citizens in Western Europe’s 33 major cities rose from 10 in 2006 to 14 million in 2016. In the majority of the metropolises foreign citizens make up less than 15% of the local population as of 2016.

Foreign citizens have location preferences

In the context of Western Europe, foreigners are concentrated in large cities and prefer those in the Northwest over those in the South. At an individual state level, they tend to settle based on the city’s weight in the national economy.

Migrants raise the affluence of urban economies

Cities with higher shares of foreign citizens have higher levels of GDP per capita. This positive impact is channeled through a boost to the share of the working age population and, to a greater extent, labour productivity.

Both high- and low-skilled migrants contribute positively to productivity

Metropolises with higher proportions of foreign citizens exhibit larger shares of adults with tertiary degrees. Low-skilled migrants bring benefits as well by taking up routine jobs and enabling natives to move to more complex tasks.

Gains from migration are broadly shared

Western European cities that have higher foreign populations also record higher household earnings in both richest and poorest deciles.

Foreigners as consumers present worthwhile business opportunities

Migration, in addition to its impact on overall city affluence, has direct business implications. The case study showcases specific examples of how companies in London, Vienna and Barcelona took advantage of market opportunities created by the presence of foreign nationals.

Introduction

Scope
Key findings

Overview of International Migration Trends

International migration has been shaping Western Europe’s cities
Foreign population is up across Western European metropolises
Foreign citizens in cities: Absolute numbers and population shares
Foreign citizens follow the nation’s economic geography
Foreign citizens are concentrated in large cities in Western Europe
Foreign citizens prefer northwestern to southern European cities
Zooming in on foreign migrants in northern European cities
Zooming in on foreign migrants in southern European cities

Impact of Migration on City Affluence

IMF study: Migration boosts affluence of advanced economies
Application of IMF study in case of 33 Western European cities

Case Study: Foreign Nationals as Consumers

Case study: Foreign nationals as consumers
London: Polish groceries set up shop
Vienna: The arrival of Islamic banking
Barcelona: Real estate agencies cater to Chinese buyers

Conclusion

Urban economies and individual firms benefit from migration
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