Fractionalization and The Tragedy of Growth

This paper examines the effect of population diversity or fractionalization on income growth in U.S. cities. Using city level data across decades, I find population diversity has no significant impact on income growth. This directly contradicts the conclusion of established researches that fractionalization causes significant negative impact on income growth of a locality. I consider fractionalization and public policy to be jointly determined, and use instrumental variables to establish the causality between fractionalization and income growth. My results show that when fractionalization is assumed to be an exogenous characteristic, it does have a significant negative impact on growth. However, instrumenting fractionalization in a 2SLS framework shows no significant impact on growth.