The tragedies associated with religious and ethnic conflicts are rife.
- Egypt is on the verge of a civil war.
- Africa’s development has been delayed since decolonisation by ethnic conflict.
- A court ruling in the US has put racial divides (once again) on the stage of the political debate in that country.
Racial, ethnic and religious conflicts are on the front pages of newspapers.
In fact, many countries, including in Europe, are becoming more diverse. Legal immigrants now represent on average 10% of the OECD labour force – a figure that has more than doubled in the last 20 years (and tripled for the share of immigrants in the skilled labour force). Illegal immigration adds to these figures.
The handling of immigration and immigrants are key policy questions in the coming decade, especially in western Europe which is the main destination for African and eastern European potential immigrants.
Immigration and the economy
What are the implications of this growing diversity for the economy?
Economic theory tells us that diversity generates costs as it makes communication and cooperation more difficult. But it also generates benefits in terms of potential skill complementarity between workers from diverse backgrounds. Existing literature has focused on ethnic, linguistic and religious diversity and has emphasised its negative effects on economic performance and growth (Easterly and Levine, 1997, Alesina et al., 2003).
In recent research, we revisit this question using a new perspective: birthplace diversity (Alesina Harnoss and Rapoport 2013). This variable, which measures the probability that two individuals drawn at random in a given country have the same country of birth, can be decomposed into a 'size of immigration' (or share of foreign-born) component and a “diversity of immigration” component. It is very different from ethno-linguistic and religious diversity, both statistically and conceptually.
- Statistically, ethnic and birthplace diversity have little correlation (the coefficient of correlation is only 0.16).
This may sound surprising but much of ethno-linguistic diversity (for example black people/white people in the US, Flemish/Walloons in Belgium, or the ethnic mosaics of many African countries) owes little to immigration.
- Conceptually, the two are equally very different.
In particular, the notion that people of diverse backgrounds can be complementary due their increasing the set of skills, knowledge, practices and problem solving procedures available to a given set of workers would seem more relevant for people who grew up in different countries and were educated in different school systems than for people of different ethnicities but who were born in the same country and went to the same schools.
The main robust result that emerges from our empirical analyses for a large sample of countries is simple, but important:
- Diversity of skilled immigration has a positive impact on the income and productivity levels of the richer countries in our sample.1
This effect is statistically and economically significant. But what causes what? Is a nation’s success attracting diversity or is it the diversity that is fostering success?
Investigating the direction of causality
We think a bit of both is going on, but we delve deeper into this causality issue. Following a long tradition we use a gravity model to predict bilateral migration flows. This is a model that predicts immigration flows based on variables which are reasonably exogenous. The commonly used variables retained include mainly bilateral geographic (e.g., distance, existence of a common border, etc.) and cultural/historical (e.g., common language, colonial links) variables. Using these variables as a way to predict immigration we can establish that diversity of immigration benefits the receiving country.
Using this procedure we find substantial eviden