Does diversity impact competitiveness? A cross country analysis

In today's global economy, a country's level of competitiveness has emerged as an important policy tool for business leaders and the impact of many economic and institutional “hard” factors on competitiveness have been studied. The purpose of this paper is to examine the impact that diversity, a “soft” factor, has on a country's level of competitiveness.

Using a sample of 102 countries, a multiple regression analysis is performed in which the relationship between a country's competitiveness, as proxied by the global competitiveness index, and diversity, as proxied by ethnic, linguistic, and religious diversity, are tested while controlling for other factors known to affect competitiveness. Further, a cluster analysis is performed in an effort to illuminate global patterns in competitiveness.

The results indicate that greater levels of ethnic diversity negatively and significantly affect a country's competitiveness, but greater levels of linguistic diversity positively and significantly affect competitiveness while religious diversity has no effect.

The reasons behind for the analysis results still need further research. For example, why do greater levels of linguistic diversity positively affect country competitiveness?

The IMF, World Bank, and other investors of capital need to understand whether diversity will help or hinder aid and loan programs and corporations need to consider diversity when conducting global business and foreign investment.

This study is the first to examine the relationship between diversity and country‐level competitiveness and has value to global business managers and investors.