ETHNIC DIVERSITY AND TRUST

I. INTRODUCTION As Putnam (2007) argues, immigration has grown significantly across the rich countries of the world in the last few decades and it continues to grow. While the share of immigrants in the United States population, for example, increased by half, it tripled in Italy since 1990. Although diversity and immigration are not identical, growing immigration has increased ethnic diversity in rich countries. Because immigrants typically have higher fertility rates, ethnic diversity is likely to increase even more in the years ahead (Putnam 2007, p. 140). As most countries such as the United States get ethnically more and more diverse, the relationship between ethnic diversity and social capital, especially trust, (1) becomes increasingly important. Several studies such as by Knack and Keefer (1997) and Zak and Knack (2001) show the importance of trust for economic growth. As Knack (1999) argues, high-trust societies achieve higher economic growth due to lower transaction costs. Because trust protects property and contractual rights, it is not necessary to divert resources from production to protection. According to Knack and Keefer (1997), innovation hardly takes place in low-trust societies. Entrepreneurs, rather than devoting more time innovating new products, have to devote more time monitoring their employees. Trust not only affects economic variables such as growth but also affects political variables such as corruption. Uslaner (2008) finds that trust leads to higher institutional quality, particularly to lower political corruption. As both Rothstein (2003) and Uslaner (2004) argue, people who trust each other are likely to think that most people play by the rules in both "person-to-person" contacts and in their contacts with government institutions. That is, they are less likely to corrupt these institutions. If trust is that important for higher economic growth and lower political corruption, identifying the factors affecting trust and identifying if ethnic diversity is one of them is perhaps even more important. There are two competing hypotheses explaining the relationship between ethnic diversity and trust: conflict hypothesis and contact hypothesis. According to the conflict hypothesis, diversity causes trust to decrease. People have a tendency to associate with, socialize with, and be more comfortable with people who appear similar to themselves (Delhey and Newton 2005). A great example of such behavior was observed during the filming of "The Planet of the Apes." All actors who appeared as apes were put in make-up and dressed on the set and had lunch catered to them in specially designed and staffed eating areas. None of the actors in make-up was permitted off the set during the working day. Actors who played chimpanzees, gorillas, and orangutans socialized with their own kinds during breaks in production. Kim Hunter who was playing Dr. Zira, a chimp, for example, always ate with her fellow chimps and rarely spoke with her close friend Maurice Evans who was playing an orangutan, Dr. Zaius (Hofstede 2001). Conflict hypothesis simply states that the more people live in a society with people who belong to another ethnic group, the more they trust their own and the less they trust the other (Putnam 2007). Quite a few empirical studies find evidence supporting the conflict hypothesis. Using cross-country data, Delhey and Newton (2005), for example, find a negative relationship between ethnic diversity and trust as do Alesina and La Ferrara (2002) using U.S. data. According to contact hypothesis, as people have more contact with people who belong to other ethnic groups, they trust them more (Putnam 2007). Uslaner (2006), for example, argues that diversity causes trust to decrease only if there is lack of contact between people who belong to different ethnic groups. Using U.S. and Canadian data, Stolle et al. (2008) find that people who are regularly in contact with the other people are less affected by their ethnicity than people who lack contact. …