Global competitiveness and cultural heterogeneity

Abstract

The cultural heterogeneity of a country, the division of a population into several different ethnic, linguistic or religious groups can either represent a potential for development or be problematic. Heterogeneity can be an obstacle to communication and cooperation, but many examples in economic history show that cultural or ethnic diversity is a key element for successful, competitive and developed countries. The diversity of a population can influence people’s individual preferences, their strategic choices and enhances the productive potential of a country. The heterogeneity of a society can provide a rich, diverse pool of skills, talents and experience, creating a favourable environment for innovation, but on the other hand diversity can lead to distrust, lack of cooperation or even hostility between different population groups.

This study applies cross-sectional multiple regression analysis of 134 countries to identify the relationship between cultural, ethnic and religious heterogeneity and competitiveness. The so-called fractionalisation index was used to quantify heterogeneity; the ethnic fractionalisation was based on data from around the year 2000, linguistic fractionalisation from 2014, and religious fractionalisation from 2010. Competitiveness was measured using the Global Competitiveness Index and its component, the Innovation Index for 2014 published by the World Economic Forum. The regression model used several control variables, including population size, the literacy rate, the year of independence, the regional location of the countries analysed and the degree of urbanisation measured by the proportion of the population living in urban areas and the number of global cities.

The results of our research show that a higher degree of religious fractionalisation goes hand in hand with higher global competitiveness and innovative capacity. Innovation capacity is negatively linked to ethnic fractionalisation and positively to linguistic fractionalisation, but the global competitiveness index shows no significant correlation with ethnic or linguistic fractionalisation if the geographical regions of the countries are included in the analysis. When dividing the countries into two groups according to their year of independence, the degree of urbanisation was found to be positively related to competitiveness and innovation only for the group of countries which gained independence after 1950.