Does Multiculturalism Pay? Empirical Evidence from the United States and Canada

Abstract

We investigate the economic impacts of social diversity and the consequent barriers of communication in Canada and the United States. Social diversity is explained by linguistic, cultural and religious differences across the 48 contiguous states in the United States and the 10 provinces in Canada. The ordinary least squares (OLS) and instrumental variables estimation show that social diversity increases per capita gross domestic product at the state and province level, but the positive economic pay-off from diversity diminishes as the level of fluency in official language declines. The empirical results provide an important economic rationale for overcoming linguistic divisions and “inclusive” multiculturalism in other pluralistic countries, such as Australia.