Diversity and the Wealth of Nations Existing theories of comparative development highlight a variety of proximate and ultimate factors underlying some of the vast inequities in living standards across the globe. The importance of geographical, cultural and institutional factors, human capital formation, ethnic, linguistic, and religious fractionalization, colonialism and globalization has been at the center of a debate regarding the origins of the differential timing of transitions from stagnation to growth and the remarkable transformation of the world income distribution in the last two centuries. While theoretical and empirical research has typically focused on the contemporaneous effects of such factors, attention has recently been drawn towards "deep-rooted" factors that have been argued to affect the course of comparative economic development from the dawn of human civilization to the modern era. This research will advance and empirically examine several hypotheses about the importance of diversity in the understanding of contemporary economic development across the globe. The hypotheses rest on the interplay between two conflicting effects of diversity on the development process. On the one hand, diversity tends to reduce cooperation and disrupts socioeconomic order, inhibiting the ability of society to operate efficiently with respect to its production possibility frontier. On the other hand, a wider spectrum of traits is more likely to contain the ones that are more complementary to the development and successful implementation of advanced technological paradigms via (i) specialization in complementary tasks, or (ii) greater variance in cognitive traits conducive to innovations. This first part of the project will explore the role of diversity in the emergence and prevalence of interethnic conflicts in the modern era, reflecting the long shadow of prehistory through its effect on genetic diversity. Exploiting variations across national populations, it will establish that genetic diversity has contributed significantly to the incidence and onset of interethnic conflicts in the 20th century. In particular, this finding will be shown to reflect the adverse effect of diversity on interpersonal trust and cooperation, the contribution of diversity to inequality, the association between diversity and divergence in preferences for public goods and redistributive policies, and the impact of genetic diversity on the degree of ethnic fractionalization and polarization. The second part of the project will explore the role of European colonialism on comparative development across countries in the Americas over the last 500 years via its differential effect of the diversity of the American population. Specifically, the research will advance the hypothesis that the migration to the New World in the course of European colonization significantly altered the diversity and, hence, the composition of human capital in New-World countries. In particular, the level of diversity that existed in the New World during the pre-colonial era increased substantially, towards the optimal level, in the post-1500 time period. Moreover, consistently with documented patterns of European colonization, the increase in diversity was larger in those New World locations where the initial population density was lower.
The proposed project will redirect research in the field of economic growth into important unexplored interdisciplinary avenues. Moreover, the research will yield important and novel policy implications by contributing to the understanding the of role of diversity in sustaining the growth process of advanced economies and in facilitating the economic take-off of less developed economies.
