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A Theory of Racial Diversity, Segregation, and Productivity

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Abstract

Empirical evidence illustrates that diversity generates both economic costs and benefits. This paper develops a theoretical model that accounts for the positive and deleterious effects of heterogeneity. First, an expanded Solow Growth Model demonstrates that the direct effects of diversity can be positive or negative, and depend upon the size of fixed parameter values. Second, diversity also influences individuals’ location decisions. Segregation (variation of diversity across regions) always reduces national output per worker, so if diversity induces integration, it indirectly augments productivity as well. Finally, political policies aimed at reducing interaction costs across groups may actually reduce aggregate output per worker by encouraging segregation.

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File URL: http://commons.colgate.edu/cgi/viewcontent.cgi?article=1002&context=econ_facschol
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Paper provided by Department of Economics, Colgate University in its series Working Papers with number 2007-03.

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Date of creation: Nov 2007
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Handle: RePEc:cgt:wpaper:2007-03

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Keywords: Diversity; Segregation; Macroeconomic Productivity; Growth and Development Theory;

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Cited by:
  1. Peri, Giovanni & Sparber, Chad, 2010. "Highly-Educated Immigrants and Native Occupational Choice," Working Papers 2010-09, Department of Economics, Colgate University.
  2. Francesca Mazzolari & David Neumark, 2009. "Immigration and Product Diversity," NBER Working Papers 14900, National Bureau of Economic Research, Inc.
  3. Parrotta, Pierpaolo & Pozzoli, Dario & Pytlikova, Mariola, 2010. "Does Labor Diversity Affect Firm Productivity?," Working Papers 10-12, University of Aarhus, Aarhus School of Business, Department of Economics.
  4. Ryusuke Ihara & Shizu Yamamoto, 2012. "Does labor diversity cause agglomeration in Japan?: an NEG approach with a covariance structure analysis," ERSA conference papers ersa12p430, European Regional Science Association.
  5. Ryusuke Ihara, 2011. "Agglomeration with the pros and cons of labor heterogeneity," ERSA conference papers ersa11p528, European Regional Science Association.
  6. Thomas Kemeny, 2013. "Immigrant Diversity and Economic Development in Cities: A Critical Review," SERC Discussion Papers 0149, Spatial Economics Research Centre, LSE.
  7. Dana Schüler & Julian Weisbrod, 2010. "Ethnic fractionalisation, migration and growth," Empirical Economics, Springer, vol. 39(2), pages 457-486, October.

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