Ethnic Diversity

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Ethnic Diversity and Economic Performance
Citation Alesina, Alberto, and Eliana La Ferrara. 2005. Ethnic diversity and economic performance. Journal of Economic Literature 43(3): 762-800. doi:10.1257/002205105774431243 October 7, 2012 10:32:49 PM EDT http://nrs.harvard.edu/urn-3:HUL.InstRepos:4553005 This article was downloaded from Harvard University's DASH repository, and is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-ofuse#LAA

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HIER
Harvard Institute of Economic Research
Discussion Paper Number 2028 Ethnic Diversity and Economic Performance by Alberto Alesina and Eliana La Ferrara

December 2003

Harvard University Cambridge, Massachusetts
This paper can be downloaded without charge from: http://post.economics.harvard.edu/hier/2003papers/2003list.html The Social Science Research Network Electronic Paper Collection: http://ssrn.com/abstract=569881

Ethnic Diversity and Economic Performance1
Alberto Alesina Harvard University NBER, CEPR Eliana La Ferrara Universita’ Bocconi IGIER

December 2003

thank David Laitin and two anonymous referees for very useful comments. Angelo Mele provided excellent research assistance. Alesina is grateful to the NSF for financial support through a grant to the NBER.

1 We

Abstract We survey and asses the literature on the positive and negative effects of ethnic diversity on economic policies and outcomes. Our focus is on countries, on cities in developed countries (the US) and on villages in developing countries. We also consider the endogenous formation of political jurisdictions and we highlight several open issues in need of further research.

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Introduction

From the “tragedy of Africa” to social problems of American cities, the effects of racial conflict have risen to the center of attention not only of policymakers but also of academic researchers.1 While sociologists and political scientists have long been aware of the importance of these issues, only recently economists have begun paying more systematic attention to them. The purpose of this paper is to discuss the question: is ethnic diversity “good” or “bad” from an economic point of view, and why? Its potential costs are fairly evident. Conflict of preferences, racism, prejudices often lead to policies which are suboptimal from the point of view of society as a whole, and to the oppression of minorities which may then explode in civil wars or at least in disruptive political instability. But an ethnic mix also brings about variety in abilities, experiences, cultures which may be productive and may lead to innovation and creativity. The United States are the quintessential example of these two faces of racial relations in a “melting pot”. While much evidence points toward the problem of racial heterogeneity in US cities, the racially mixed and racially troubled New York City and Los Angeles are constant producers of innovation in the arts and business. In what follows we try to highlight the trade off between the benefits of “variety” and complexity and the costs of heterogeneity of preferences in a multi-ethnic society. In order to bring more evidence to bear on this question we plan to examine jointly two strands of the literature that have proceeded in a parallel way: one on cross country comparisons, and one on local communities. The latter is itself split into two sub areas with little communication between the two, namely the public and urban economics literature on US cities on the one hand, and the development literature which focuses on groups and local communities on the other. Within both strands of the literature, one approach takes the size and number of jurisdictions (countries or localities) as given, and studies the effects of different degrees of ethnic fragmentation on quality of...
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