Interactions between culturally diverse individuals can spur economic benefits by stimulating new ideas that raise urban residents' productivity. But diversity can also diminish economic well-being by making communication difficult, and by stimulating conflict. This paper investigates whether urban institutions—in particular residents' sense of generalized trust—determine when diversity is an economic asset and when it is a liability. To do so, data on trust, birthplace diversity, wages, and demographics in US metropolitan areas are combined. The evidence suggests that workers are much better able to harness the productivity-enhancing spillovers that arise from cultural diversity when they live in cities endowed with strong informal institutions.
AlesinaADrazenA, 1991, “Why are stabilizations delayed?”The American Economic Review8111701188
2.
AlesinaALa FerraraE, 2000, “Participation in heterogeneous communities”Quarterly Journal of Economics115847904
3.
AlesinaALa FerraraE, 2002, “Who trusts others?”Journal of Public Economics85207234
4.
AlesinaALa FerraraE, 2005, “Ethnic diversity and economic performance”Journal of Economic Literature43762800
5.
AlesinaABaqirREasterlyW, 1999, “Public goods and ethnic divisions”Quarterly Journal of Economics11412431284
6.
AnconaDCaldwellD, 1992, “Demography and design: Predictors of new product team performance”Organization Science3321341
7.
ArrowK, 1972, “Gifts and exchanges”Philosophy and Public Affairs1343362
8.
AutorDLevyFMurnaneR, 2003, “The skill content of recent technological change: An empirical exploration”Quarterly Journal of Economics11812791334
9.
BairochP, 1991Cities and Economic Development: From the Dawn of History to the Present (University of Chicago Press, Chicago, IL)
10.
BandieraOBarankaIRasulI, 2005, “Cooperation in collective action”Economics of Transition13473498
11.
BantelKJacksonS, 1989, “Top management and innovations in banking: Does the composition of the top team make a difference?”Strategic Management Journal10S1107124
12.
BjørnskovC, 2007, “Determinants of generalized trust: A cross-country comparison”Public Choice130121
13.
CardD, 2001, “Immigrant inflows, native outflows, and the local labor market impacts of higher immigration”Journal of Labor Economics192264
14.
CicconeAHallR, 1996, “Productivity and the density of economic activity”The American Economic Review865470
15.
CollierP, 2000, “Ethnicity, politics and economic performance”Economics and Politics12225245
16.
CollierPGunningJ, 1999, “Explaining African economic performance”Journal of Economic Literature3764111
17.
CombesPDurantonGGobillonL, 2008, “Spatial wage disparities: Sorting matters!”Journal of Urban Economics63723742
18.
ConleyTFlyerFTsiangG, 2003, “Spillovers from local market human capital and the spatial distribution of productivity in Malaysia”Advances in Economic Analysis and Policy3(1) article 5
19.
CostaDKahnM, 2003, “Civic engagement and community heterogeneity: An economist's perspective”Perspectives on Politics1103111
20.
DurantonGPugaD, 2001, “Nursery cities: Urban diversity, process innovation, and the life cycle of products”American Economic Review9114541477
21.
EasterlyW, 2001, “Can institutions resolve ethnic conflict?”Economic Development and Cultural Change49687706
22.
EasterlyWLevineR, 1997, “Africa's growth tragedy: Policies and ethnic divisions”Quarterly Journal of Economics11212031250
23.
FeldmanMPAudretschDB, 1999, “Innovation in cities: Science-based diversity, specialization and localized competition”European Economic Review43409429
24.
FukuyamaF, 1995Trust: The Social Virtues and the Creation of Prosperity (The Free Press, New York)
25.
GlaeserELKallalHDScheinkmanJAShleiferA, 1992, “Growth in cities”The Journal of Political Economy10011261152
26.
GoldinCKatzL, 1999, “Human capital and social capital: The rise of secondary schooling in America, 1910–1940”Journal of Interdisciplinary History29683723
27.
GranovetterM, 1973, “The strength of weak ties”American Journal of Sociology7813601380
28.
HendersonJ, 1985Economic Theory and the Cities (Academic Press, London)
29.
HerringC, 2009, “Does diversity pay?: Race, gender, and the business case for diversity”American Sociological Review74208224
30.
HoffmanLMaierN, 1961, “Quality and acceptance of problem solutions by members of homogeneous and heterogeneous groups”Journal of Abnormal and Social Psychology62401407
31.
HongLPageS, 2001, “Problem solving by heterogeneous agents”Journal of Economic Theory97123163
32.
JacobsJ, 1969The Economy of Cities (Random House, New York)
33.
JaffeABTrajtenbergMHendersonR, 1993, “Geographic localization of knowledge spillovers as evidenced by patent citations”The Quarterly Journal of Economics108577598
34.
KemenyTRigbyD, 2011, “Trading away what kind of jobs? Globalization, trade and tasks in the US economy”Review of World Economics pages 116, doi:10.1007/s10290-011-0099-5
35.
KnackSKeeferP, 1995, “Institutions and economic performance: Cross-country tests using alternative institutional measures”Economics and Politics7207227
36.
KrugmanP, 1996, “Urban concentration: The role of increasing returns and transport costs”International Regional Science Review19(1–2) 530
37.
La PortaRLopez-De SilanesFShleiferAVishnyR, 1997, “Trust in large organizations”The American Economic Review87333338
38.
LazearE, 1999, “Globalisation and the market for team-mates”The Economic Journal109 454 1540
39.
LeighA, 2006, “Trust, inequality and ethnic heterogeneity”Economic Record82(258) 268280
40.
LucasR, 1988, “On the mechanics of economic development”Journal of Monetary Economics22342
41.
MarshallA, 1890Principles of Economics8th edition (Macmillan, London)
42.
MorettiE, 2004, “Estimating the social return to higher education: Evidence from longitudinal and repeated cross-sectional data”Journal of Econometrics121(1–2) 175212
43.
O'ReillyCCaldwellDBarnettW, 1989, “Work group demography, social integration, and turnover”Administrative Science Quarterly342137
44.
OttavianoGPeriG, 2006, “The economic value of cultural diversity: Evidence from US cities”Journal of Economic Geography6944
45.
OzgenCNijkampPPootJ, 2011, “Immigration and innovation in European regions”, IZA DP 5676, Bonn
46.
PageS, 2008The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies (Princeton University Press, Princeton, NJ)
47.
PennantR, 2005, “Diversity, trust and community participation in England”, Research Development and Statistics Directorate Paper 253, Home Office, London
48.
PoterbaJ, 1997, “Demographic structure and the political economy of public education”Journal of Policy Analysis and Management164866
49.
PutnamR, 2000Bowling Alone: The Collapse and Revival of American Community (Simon and Schuster, New York)
50.
PutnamR, 2007, “E pluribus unum: Diversity and community in the twenty-first century. The 2006 Johan Skytte Prize lecture”Scandinavian Political Studies30(2) 137174
51.
RahnWTransueJ, 1998, “Social trust and value change: The decline of social capital in American youth, 1976–1995”Political Psychology19545565
52.
RauchJ, 1993, “Productivity gains from geographic concentration of human capital: Evidence from the cities”Journal of Urban Economics34380400
53.
RichardOKochanTMcMillan-CapehartA, 2002, “The impact of visible diversity on organizational effectiveness: Disclosing the contents in Pandora's black box”Journal of Business and Management8265292
54.
RobackJ, 1982, “Wages, rents, and the quality of life”The Journal of Political Economy9012571278
55.
RodrikD, 1999, “Where did all the growth go? External shocks, social conflict, and growth collapses”Journal of Economic Growth4385412
56.
RosenthalSStrangeW, 2004, “Evidence on the nature and sources of agglomeration economies”Handbook of Regional and Urban Economics421192171
57.
RothsteinBUslanerE, 2006, “All for one: Equality, corruption, and social trust”World Politics584172
58.
RugglesSAlexanderJGenadekKGoekenRSchroederMSobekM, 2010, “Integrated public use microdata series: Version 5.0”, Minnesota Population Center, Minneapolis, MN
59.
RupasinghaAGoetzS, 2008, “US county-level social capital data, 1990–2005”, The Northeast Regional Center for Rural Development, Pennsylvania University, University Park, PA
60.
SaizA, 2007, “Immigration and housing rents in American cities”Journal of Urban Economics61345371
61.
SparberC, 2009, “Racial diversity and aggregate productivity in US industries: 1980–2000”Southern Economic Journal75829856
62.
StolleDHoogheM, 2005, “Inaccurate, exceptional, one-sided or irrelevant? The debate about the alleged decline of social capital and civic engagement in Western societies”British Journal of Political Science35149167
63.
StorperMVenablesAJ, 2004, “Buzz: Face-to-face contact and the urban economy”Journal of Economic Geography4351370
64.
SuedekumJWolfKBlienU, 2009, “Cultural diversity and local labour markets” IZA DP 4619, Bonn
65.
TaylorCHudsonM, 1972World Handbook of Political and Social Indicators (Yale University Press, New Haven, CT)
66.
VenablesA, 2011, “Productivity in cities: Self-selection and sorting”Journal of Economic Geography11241251
67.
ZakPKnackS, 2001, “Trust and growth”The Economic Journal111(470) 295321
