The impact of ethnic diversity on the quality of exports: the case from China

Abstract

The quality of exports is an important indicator of the economic development of a country. It is, therefore, important to understand its determinants. Existing literature reveals a number of determinants such as the position of a country, the distance to the trading partner, the size of the firm, and the productivity or the quality of inputs. In this study, I propose a new determinant, namely, ethnic diversity. In the first stage of my research, I estimate the quality of exports following Berry (1994) approach. I also address the endogeneity problem as suggested by Khandelwal (2010). My measure of ethnic diversity follows Easterly and Levine (1997). In the second stage, I regress the estimated quality on the measure of ethnic diversity, interacted by the degree of differentiation of the goods. First, I find that ethnic diversity in general reduces the quality of exports. Second, I find that the impact varies with the degree of differentiation. In particular, while ethnic diversity decreases the quality of differentiated goods, it increases the quality of homogeneous goods. Because of data limitations, the research cannot investigate the impact of migration. The findings of my paper show how we can improve the quality of products based on the characteristics of the population and of the products. In the last decade, there has been growing attention paid to the impact of ethnic diversity on economic performance. As industrial powerhouses such as China continue to urbanize, stitching together once-disparate ethnic groups, the role ethnic diversity plays in the economic life of a country must be examined from a variety of angles. My paper is the first to investigate the specific impact of that diversity on product quality and on how diversity interacts with the characteristics of products.