The Cost and Benefit of Regional Cultural Diversity on the Income of Rural Workers: Evidence from China

This paper studies the impact of regional cultural diversity of working cities on the income of rural workers. Using a nationally representative micro-dataset in China, and adopting dialect diversity at the city level as the indicator of regional cultural diversity, we find that regional cultural diversity has a highly significant hump-shaped effect on rural workers' incomes from the wage employment and self-employment, reflecting a trade-off between the beneficial and the detrimental effects of regional cultural diversity on rural workers' incomes. The results remain robust to the inclusion of a set of covariates, alternative estimation technique, alternative measure of regional cultural diversity, and a placebo test. We also find that the detrimental effect of diversity is weaker for high-educated rural workers, and the impact of regional cultural diversity remains stable in the short term. To address potential endogeneity, we employ an instrumental variable approach by using the river length of cities to instrument the dialect diversity, and the instrumented results confirm the conclusions. In addition, we provide empirical evidence that the cost and benefit of regional cultural diversity on the income of rural workers can be attributed to reduced social capital and increased creativity.