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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. 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.
  2. Giovanni Peri & Chad Sparber, 2008. "Highly-Educated Immigrants and Native Occupational Choice," CReAM Discussion Paper Series 0813, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  3. Ryusuke Ihara, 2011. "Agglomeration with the pros and cons of labor heterogeneity," ERSA conference papers ersa11p528, European Regional Science Association.
  4. Francesca Mazzolari & David Neumark, 2012. "Immigration and product diversity," Journal of Population Economics, Springer, vol. 25(3), pages 1107-1137, July.
  5. Thomas Kemeny, 2013. "Immigrant Diversity and Economic Development in Cities: A Critical Review," SERC Discussion Papers 0149, Spatial Economics Research Centre, LSE.
  6. Dana Schüler & Julian Weisbrod, 2010. "Ethnic fractionalisation, migration and growth," Empirical Economics, Springer, vol. 39(2), pages 457-486, October.

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