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A Theory of Racial Diversity, Segregation, and Productivity

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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Web page: http://www.colgate.edu/academics/departments-and-programs/economics

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  16. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
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