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Ethnic diversity and growth: revisiting the evidence

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Abstract

The relationship between ethnic heterogeneity and economic growth is complex. Empirical research working with cross-country data nds a negative, or statistically insignificant, relationship. However, research at the city level usually finds a positive relationship between diversity and wages/productivity. Generally, the trade-off between the economic benefits of diversity and the costs of heterogeneity implies that the relationship between diversity and growth depends on the size of the area used as the unit of observation. In this paper we perform a systematic analysis of the effect of the size of geographical units on the relationship between ethnic diversity and growth. We nd a positive relationship for small geographical areas and no effect for large areas and countries. There are potentially different mechanisms that can explain this result depending on the structure of the economy and its level of development. In the case of Africa, we argue that a possible explanation of the positive relationship between diversity and growth is the increase in trade at the boundaries between ethnic groups due to ethnic specialization.

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  • José Garcia Montalvo & Marta Reynal-Querol, 2017. "Ethnic diversity and growth: revisiting the evidence," Economics Working Papers 1585, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:1585
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    1. Jessie Bakens & Peter Mulder & Peter Nijkamp, 2013. "Economic Impacts Of Cultural Diversity In The Netherlands: Productivity, Utility, And Sorting," Journal of Regional Science, Wiley Blackwell, vol. 53(1), pages 8-36, February.
    2. Alberto Alesina & Johann Harnoss & Hillel Rapoport, 2016. "Birthplace diversity and economic prosperity," Journal of Economic Growth, Springer, vol. 21(2), pages 101-138, June.
    3. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1203-1250.
    4. Alberto Alesina & William Easterly & Janina Matuszeski, 2011. "Artificial States," Journal of the European Economic Association, European Economic Association, vol. 9(2), pages 246-277, April.
    5. Chad Sparber, 2010. "Racial Diversity and Macroeconomic Productivity across US States and Cities," Regional Studies, Taylor & Francis Journals, vol. 44(1), pages 71-85.
    6. Oguzhan Dincer & Fan Wang, 2011. "Ethnic diversity and economic growth in China," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 14(1), pages 1-10.
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