DP12400 Ethnic Diversity and Growth: Revisiting the Evidence

Author(s):	Jose G Montalvo, Marta Reynal-Querol
Publication Date:	October 2017
Date Revised:	July 2020
Keyword(s):	economic growth, Ethnicity, Scale
JEL(s):
Programme Areas:	Development Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=12400

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 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.