Ethnic Diversity and Growth: Revisiting the Evidence

The relationship between ethnic heterogeneity and economic growth is complex. Empirical research working with cross-country data finds a negative, or statistically insignificant, relationship. However, analysis at the city level finds a positive effect of diversity on wages and productivity. Generally there is a trade-off between the economic benefits of diversity and the costs of heterogeneity. Using cells of fixed size, we find that the relationship between diversity and growth is positive for small geographical areas. In the case of Africa, we argue that the explanation is the increase in trade at the boundaries between ethnic groups due to ethnic specialization.

Automated summary

The relationship between ethnic heterogeneity and economic growth is complex, with cross-country studies finding a negative or statistically insignificant link, while city-level analysis shows a positive effect on wages and productivity. There is generally a trade-off between the economic benefits of diversity and the costs of heterogeneity. In smaller geographical areas, diversity is positively correlated with growth, attributed in Africa to increased trade at the boundaries between ethnic groups due to ethnic specialization.