Effects of Cultural Diversity on Economic Performance in Russian Regions

Cultural diversity in modern Russian society is determined, first, by the composition of the ethnic and cultural space, sometimes historically rooted in the distant past, and, second, by migration. Given the spatial characteristics of Russia, cultural diversity of cities and regions is driven not only by international, but also by internal migration. When studying the topic of cultural diversity, economic researchers are primarily interested in assessing its effects on economic performance. Over the past decades, the topic has been explored by a wide range of researchers. ?Is a culturally diversified community more successful than a homogenous one?? is one of the major questions addressed in such research. Conclusions from theoretical models offered by M. Berliant and M. Fujita with respect to the impact of cultural diversity on economic growth and its role in the creation of new knowledge suggest that productivity of knowledge creation in a region with a homogeneous culture is lower than where cultures are diverse and R&D workers are heterogeneous. The empirical literature on effects of cultural diversity offers both positive and negative evidence. The authors of this study aim to explore the cultural diversity of Russia and assess its economic value. This paper presents the first outcomes of the study. To assess cultural diversity the Simpson?s index was used. Empirical research was conducted using an open system of cities modeled by G. Ottoviano and G. Peri in which ?diversity? has impact on both performance of firms and satisfaction of customer needs through localized externalities. Preliminary evaluation of correlation between growth of income, wages and increase in the share of foreign migrants, and the share of non-native population shows that regardless of the characteristics of a region, significant correlation is only observed between growth of income, wages and share of international migration. Econometric estimation of the theoretical model used regressions of wages and rent. Per capita income and average monthly wage were alternately used as dependent variables in the regression of income. Explanatory variables were indices reflecting cultural diversity: the Simpson?s index based on country of origin, the Simpson?s index among foreign migrants and the share of foreign migrants in the population of a region. Control variables in the regressions were a set of standard control variables used in regressions of income and growth [Temple.1999; Bellini et al. 2009] that reflect differences between regions in human capital, the share of agricultural employment in total employment in the region, population density and market potential of the region.