This is a Job Market Seminar.
Is ethnic diversity good or bad for economic development? Most empirical studies find corrosive effects. In this paper, I show that ethnic diversity need not spell poor development outcomes−a history of within-group heterogeneity can turn ethnic diversity into an advantage for development. I collect new data on a natural experiment from Peru’s colonial history: the forced resettlement of native populations in the 16th century. This intervention forced together various ethnic groups in new jurisdictions. Where these groups were composed of more heterogeneous subpopulations, working in different ecological zones of the Andes prior to colonization, ethnic diversity has systematically lower costs and may even become advantageous. Cultural transmission is one likely channel. Specifically, where different ethnic groups were composed of more heterogeneous subpopulations, they engage in more reciprocal behavior and exhibit more open attitudes toward out-group members.