Diversity as a Double-Edged Sword: Opposing Effects of Ethnic and Cultural Diversity on Innovation

Abstract

Perspectives and past findings on the link between ethno-cultural diversity and innovation have been divided. The authors reason that contradictory past findings could have resulted from a lack of conceptual dissociation between two sources of ethno-cultural diversity: ethnic categorization and cultural distance between ethnic categories. By conceptually and empirically teasing apart these two sources 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) promotes innovation. Furthermore, the findings indicate that whereas the dampening effect of ethnic diversity persists regardless of level of inter-ethnic tension, the enhancing effect of cultural diversity only emerges when inter-ethnic tension is low. Finally, consistent with the National Innovation System perspective, the present study shows that structural innovation input positively contributes to innovation output and the relationship between diversity and innovation output is mediated via innovation input. Taken together, this study contributes to the literature by (1) conceptually and empirically differentiating between the two sources of ethno-cultural diversity, (2) demonstrating the contrasting effects of ethnic and cultural diversity on innovation, and (3) unpacking the indirect effects of ethno-cultural diversity on innovation output via innovation input.