Re-examining diversity as a double-edged sword for innovation process

Abstract

Existing results on the relationship between ethno-cultural diversity and innovation remain mixed. The authors argue that these inconsistencies were partly due to conceptual and empirical confusion regarding two aspects of ethno-cultural diversity. By conceptually and empirically teasing apart these two aspects of diversity, the authors demonstrated that diversity arising from ethnic categorization (referred to as ethnic diversity) impairs innovation, while diversity arising from cultural distance (referred to as cultural diversity) enhances innovation, but only when ethnic polarization is low. Consistent with the National Innovation System perspective, the present study using country-level data shows that structural innovation input positively contributes to innovation output. Furthermore, the authors found that ethnic diversity has a direct negative effect on innovation input, which in turn dampens innovation output. By contrast, cultural diversity has a direct positive effect on innovation output over and above the contribution of innovation input only when ethnic polarization is low.