Individuals of di fferent ethnicities may complement each other in production, but it is also possible that workers of the same ethnic background collaborate more eff ectively.
The article by Jonas Hjort from the Columbia Business School provides microeconometric evidence on the direct effect of ethnic divisions on productivity.
By studing workers of two antagonistisy ethnic blocs who package flowers at a plant in Kenya, he finds that interethnic rivalries lower allocative efficiency in the private sector and that the economic costs of ethnic diversity vary with the political environment. In high-cost environments firms are forced to adopt ‘‘second best’’ policies to limit distortions due to taste-based discrimination between workers.
Reference: Hjort, J. (2014). Ethnic divisions and production in firms. The Quarterly Journal of Economics, 129(4), 1899-1946.