Document Type

Working Paper

Publication Date

Fall 11-2007

JEL Codes

O40, J24, O51, J10

Working Paper Number

2007-03

Abstract

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.

Acknowledgements

I would like to acknowledge the guidance and advice from the faculty and graduate students of the University of California, Davis. I especially thank Giovanni Peri, HilaryW. Hoynes, Alan M. Taylor, Florence Bouvet, and Ahmed S. Rahman. Takao Kato, Anamaria Felicia Ionescu, Nicole Simpson, and two anonymous referees provided valuable advice. A fellowship from the University of California Office of the President provided support for this research.

Included in

Economics Commons

Share

COinS