Diversifying Growth

Two weeks ago, I reflected on some of the evidence I had reviewed on Catalán nationalism. I used it to support the argument that freer societies have a higher probability of cosmopolitanism, because their populations are likely to be more diverse. I also noted, although only in passing, that Cataluña has, historically, been one of modern Spain’s wealthier regions.

Alberto Alesina, Johann Harnoss, and Hillel Rapoport have published a paper on a related topic, immigrant diversity and economic growth. They review their findings in a recent Vox article, “Immigration, Diversity, and Economic Prosperity.” The main take away is that there is an empirical relationship between greater diversity and positive economic growth (although, they clarify later that optimal diversity is not what me might call perfect diversity — there are costs, too). But, do prosperous countries attract a more diverse population of immigrants, or does greater diversity amongst immigrants promote greater economic growth? In what way does causality run? They suggest causality probably goes both ways, but they do find,

…substantial evidence of causality going from diversity of skilled immigration to productivity of the receiving country.

One theory the authors offer is that immigrants from different countries will tend to bring in different perspectives and ideas, given variations in culture, education, experiences, et cetera. This greater heterogeneity in intellectual capital, which can be exploited through a division of labor, will tend to increase productivity. They also briefly review some of the empirical literature (pp. 4–6 of the NBER paper).

They mention that some costs of greater diversity include increased difficulty of communication (because diverse people speak different languages), social conflict, et cetera. These are all relevant costs, but I wonder if there’s an economies of scale type relationship. That is, over time, costs should fall as people integrate and begin to socially accept the diversity. For example, the U.S. has seen a lot of racial tension throughout the 20th century, but ,while there is still plenty of racism, I’d like to think that most of us who live amongst diverse populations have a culture of acceptance. In Spain, there’s tension because large scale immigration from abroad is a relatively recent phenomenon, but hopefully much of it should subside over the long-run as this new diversity becomes reflected in the country’s culture. That’s how I envision it, at least.

3 thoughts on “Diversifying Growth

  1. PGlenn

    I haven’t had a chance to purchase the paper (Alesina, Harnoss, and Rapoport). I’m a little skeptical about them being able to effectively control for all other significant variables, but set that aside.

    Intuitively, my hypothesis is that moderate levels of diversity would outperform relatively high levels of diversity as well as relatively low levels of diversity. So, I’m wondering if the methodology of the paper addressed that possibility?

    From my personal experience, people tend to thrive when they’re in the company of people moderately different than they are, but when the gulf gets too wide, so to speak, they tend to shut down socially (an observation supported by some of the “social capital” and diversity literature).

    You allude to that possibility in suggesting there might tend to be a trade-off between high levels of diversity and high levels of “social conflict,” yet – as you know – those two categories (conflict and productivity) cannot be neatly separated. At a certain point, even if we’re talking about simmering social conflicts that fall well short of open civil strife, if the conflicts are pervasive enough, don’t they start to become a drag in the workplaces, labs, marketplaces, nodes of creativity, civic arenas, etc.?

    I wonder if our tendency to see moderately-high levels of social conflict as being compatible with high rates of productivity growth as partly a product of historical myths – e.g., the Gilded Age image of robber barons, cattlemen, and labor leaders building new cities on the backs of weaker foes, with the violence and social conflict helping to fuel the blast furnaces.

    In truth, rates of violence were relatively low in the 19th century, e.g., even if we include the bloody labor conflicts. Moreover, the population and productivity gains well outpaced the rate of ethnic diversification. Victorians of different cultural origins probably tended to agree quite a lot on matters of religion, family, ethics, etc. As you know, leftist historians have been quick to remind us that the “melting pot” wasn’t really that diverse – mostly European – and that the immigration backlash didn’t really heat up until more immigrants started arriving from southern and eastern Europe and Asia (which isn’t true: there was a bigger backlash in the mid-19th century over Catholic immigration, which was only “resolved” by the slavery issue looming larger).

    Sorry such a lengthy response.

    1. JCatalan

      Great comment! I think your skepticism is well grounded. These kind of tests, especially when the methods are innovative and largely new, tend to suffer from methodological issues. I wouldn’t be surprised if the figure is wrong. The question is whether it’s a good approximation. I haven’t taken a long enough look at their methods to argue one way or the other.

      The authors do suggest there is an optimal amount of diversity that is less than what we may call “perfect diversity.” You’re also right that it might depend on the composition of the diversity. 20% French, 20% Serbian, 20% Southern European, 20% Nordic, 20% Anglo-Saxon might suffer less conflict than a composition of 20% Japanese, 20% Sudanese, 20% Anglo-Saxon,…. But, I do like Alesina’s social capital theory of why more diversity may bring with it more productivity. A more diverse social capital is one that the division of labor can exploit to offer more opportunities (services, goods, inventions, et cetera) that would otherwise be case.

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