The Macroeconomics of Language: A Study on Linguistic Diversity and National Productivity

Abstract: Using a cross-section of linguistic and economic data on the 34 member states of the OECD, this paper studies the effect of linguistic diversity on economic productivity in economically developed countries. Linguistic diversity is measured through five different indices in order to find the measure that best explains the variance in Total Factor Productivity. We find, in contrast to existing research, that all measures surveyed indicate a positive relationship between linguistic diversity and TFP, and that the Esteban-Ray index of fractionalization provides the most statistically significant result, wherein an increase of one percentage in ER corresponds to an increase in TFP by 1.9 %. A causal relationship is investigated but cannot be established as the positive coefficient may be the result of reverse causality wherein productivity increases linguistic diversity.