A Theory of Racial Diversity, Segregation, and Productivity
Posted: 28 Mar 2009
Date Written: May 8, 2007
Empirical evidence illustrates that diversity generates both economic costs and benefits. This paper develops a theoretical model that accounts for the positive and deleterious effects of heterogeneity. First, an expanded Solow Growth Model demonstrates that the direct effects of diversity can be positive or negative, and depend upon the size of fixed parameter values. Second, diversity also influences individuals' location decisions. Segregation (variation of diversity across regions) always reduces national output per worker, so if diversity induces integration, it indirectly augments productivity as well. Finally, political policies aimed at reducing interaction costs across groups may actually reduce aggregate output per worker by encouraging segregation.
Keywords: Diversity, Segregation, Macroeconomic productivity, Growth and development theory
JEL Classification: O40, J24, O51, J10
Suggested Citation: Suggested Citation