Racial Diversity and Macroeconomic Productivity across US States and Cities

The United States is growing increasingly diverse, so it is important that economists understand the macroeconomic consequences of diversity within the US economy. International analyses often argue that heterogeneity reduces macroeconomic productivity by engendering corruption, political instability, and social turmoil. However, other studies claim that diversity improves creative decision making and augments productivity. This paper exploits differences in diversity across regions of the United States from 1980 to 2000 to determine whether racial heterogeneity creates macroeconomic gains or losses for states and cities. Fixed effects analysis indicates that diversity enhances the productivity of cities. Evidence at the state-level is more ambiguous, as significant results only appear in random effects specifications.