Does Cultural Diversity Increase The Rate Of Entrepreneurship?

Yes, folks it does at least according to the paper below. Which is pretty good news, because cultural diversity does or can do some other bad things – like undermine social solidarity and trust. Like the resource curse, I suspect cultural diversity can be pretty good all round in the presence of good institutions.

In the economic development literature, cultural diversity (for example, ethnolinguistic fractionalization) has been shown to have a negative impact on economic outcomes in many underdeveloped countries. We hypothesize that the impact of diversity on economic performance depends on the quality of a country’s institutions. Under bad institutions diversity leads to conflict and expropriation, while under good institutions diversity leads to economic progress. A culturally diverse society or interaction among different cultures encourages exchange of, and competition between ideas and different world views. Under good institutions, this amalgamation of ideas and views leads to greater entrepreneurial initiatives. We show that higher levels of cultural diversity increase the rate of entrepreneurship in the presence of good institutions using evidence from the United States.

The paper with some compelling graphs is here. it’s by: Russell S. Sobel (Department of Economics, West Virginia University), Nabamita Dutta (Department of Economics, University of Wisconsin-La Crosse) and Sanjukta Roy (Department of Economics, West Virginia University)
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