The increasing ethnic diversity of the population of many developed countries has prompted the question of whether a more diverse society increases economic growth. Previous research shows that cities and regions with more culturally diverse inhabitants (based on the country of birth, ethnicity or linguistic background of people) have higher average wages and higher economic growth (see e.g. Bellini et al., 2013; Ottaviano and Peri, 2005, 2006; Sparber, 2010; Suedekum et al., 2009). This suggests that interactions between diverse people at the level of the city increase economic performance. The arguments for these effects are often derived from the seminal work of Jacobs (1961, 1969). In her research on the economics of cities she stresses the importance of a diverse sector and firm structure in cities to maintain urban economic growth. The key to urban economic growth lies in the ability of firms to translate technologies and ideas from other sectors or other firms to their own production processes in order to innovate and keep up with changes in demand or supply of any factor that affects a firm. Applied to diversity of the population, the parallel argument is that a more diverse labour force in cities will increase productivity.
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