Chapter 18. Cultural Diversity, Conflict, and Economic Development

Are cultural differences good or bad for economic development? Can cultural differences generate conflicts and, therefore, retard economic development? Or can cultural diversity spur creativity and improve economic welfare? These are the type of questions that this chapter addresses. There are many channels through which a diverse society may affect the economic and social outcomes of countries, cities, or villages. The debate usually concentrates on empirical results based on the use of general indices that try to summarize many phenomena at the same time. The use of these indices brings also more debate into the topic, since the construction of indices always implies an hypothesis of how we believe the distribution of culturally diverse groups affects the outcome. To understand why ethnic diversity affects conflict and economic development, we first need to understand which indices best capture the channels through which cultural diversity affects economic outcomes. The chapter also reviews evidence on the effect of specific cultural arrangements on the economic development of regions and countries.