How important (or otherwise) is ethnic diversity for economic development? This is a genuinely difficult question to answer. However, this 2017 article by Philipp Ager (University of Southern Denmark) and Markus Brueckner (Australian National University), published in the journal Economic Inquiry (ungated earlier version here), makes a good attempt in one context. Ager and Brueckner use US county-level data over the period from 1870 to 2020, looking at how genetic diversity in 1870 (measured using the number of European-born people from different countries) was related to the change in output per capita (which is the sum of agricultural output and manufacturing output, and is a proxy for GDP). In their simplest regression models, they find that:
The point estimates on genetic diversity are positive and significantly different from zero at the 1% level in all regressions; quantitatively, they range between 0.09 and 0.12... the coefficient of 0.09... suggests that, on average, a one unit increase in genetic diversity increased U.S. counties’ output by around 10%. An alternative interpretation is that a one standard deviation increase in immigrants’ genetic diversity increased output per capita growth during the 1870–1920 period by around 20% (equivalent to around 0.25 standard deviations; or alternatively, 0.4% per annum).per capita during the 1870–1920 period.
That is quite a sizeable positive effect. Ager and Brueckner then go on to show that there are enduring effects, even more than a century later. The impact on 2010 income per capita is:
...around 0.04 and significantly different from zero at the 1% level.
There is also a statistically significant and positive (and somewhat larger) relationship with income per capita in 2000, 1990, 1980, and 1970. Ager and Brueckner then go even further, looking at the relationship between genetic diversity in 1790 and income per capita in 2000, finding that:
The estimated coefficient on 1790 genetic diversity is around 3.1... and statistically significant at the 1% level. Quantitatively, the estimated coefficient on immigrants’ 1790 genetic diversity suggests that a one standard deviation higher genetic diversity in 1790 was associated with a higher value of income per capita in the year 2000 of around 0.3 standard deviations.
Their results are also robust to a variety of alternative measures of development, non-linearity, controlling for pre-trends, and excluding outlier observations. However, they fall a bit short of demonstrating a causal impact, even when accounting for pre-trends, since counties that are initially more diverse may differ in meaningful ways from counties that are less diverse, not least in the types and variety of immigrants they attract. Nevertheless, the results are interesting, and especially when Ager and Brueckner consider a potential mechanism, finding that, at the state level:
...the genetic diversity variable has a significant positive effect on patents. On the other hand, there is no significant effect of genetic diversity on conflict for the sample at hand...
They don't dwell on these results too much, but I think they demonstrate that diversity is not associated with greater conflict (which would reduce productivity), but is associated with more innovation (which would increase productivity). Greater diversity leading to more innovation and therefore greater development does seem like a plausible (and good news) story. However, it would be interesting to see some more research corroborating these results in other (and perhaps more contemporary) contexts.
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