This paper examines the effects of ethnic diversity on economic performance, focusing on countries, cities in developed nations, and villages in developing countries. It also considers the endogenous formation of political jurisdictions and highlights open issues in the field. The authors argue that ethnic diversity can have both positive and negative effects on economic outcomes. On one hand, diversity can lead to innovation and creativity, as seen in the United States. On the other hand, it can lead to conflict, prejudice, and suboptimal policies. The paper reviews the literature on the effects of ethnic diversity on economic policies and outcomes, and discusses the trade-off between the benefits of diversity and the costs of heterogeneity in a multi-ethnic society. The paper presents a theoretical model that shows how ethnic diversity can affect economic performance. It argues that ethnic diversity can lead to higher productivity in private goods production but lower taxation and lower production of public goods. The model also shows that the benefits of diversity in production are more relevant in advanced societies. The paper also discusses the effects of ethnic fragmentation on public policies, showing that more ethnically fragmented societies are less likely to provide true public goods. It also examines the effects of ethnic fragmentation on public education, finding that racial heterogeneity can lead to lower response rates to government programs. The paper also discusses the effects of ethnic fragmentation on local communities, showing that more ethnically fragmented communities may have lower levels of social capital, which can lead to worse public policies. It also examines the effects of ethnic fragmentation on firms in developing countries, finding that ethnic diversity can affect productivity and economic performance. The paper concludes that while ethnic diversity can have both positive and negative effects on economic performance, the overall impact depends on the specific context and the nature of the ethnic diversity. The authors suggest that further research is needed to better understand the relationship between ethnic diversity and economic performance.This paper examines the effects of ethnic diversity on economic performance, focusing on countries, cities in developed nations, and villages in developing countries. It also considers the endogenous formation of political jurisdictions and highlights open issues in the field. The authors argue that ethnic diversity can have both positive and negative effects on economic outcomes. On one hand, diversity can lead to innovation and creativity, as seen in the United States. On the other hand, it can lead to conflict, prejudice, and suboptimal policies. The paper reviews the literature on the effects of ethnic diversity on economic policies and outcomes, and discusses the trade-off between the benefits of diversity and the costs of heterogeneity in a multi-ethnic society. The paper presents a theoretical model that shows how ethnic diversity can affect economic performance. It argues that ethnic diversity can lead to higher productivity in private goods production but lower taxation and lower production of public goods. The model also shows that the benefits of diversity in production are more relevant in advanced societies. The paper also discusses the effects of ethnic fragmentation on public policies, showing that more ethnically fragmented societies are less likely to provide true public goods. It also examines the effects of ethnic fragmentation on public education, finding that racial heterogeneity can lead to lower response rates to government programs. The paper also discusses the effects of ethnic fragmentation on local communities, showing that more ethnically fragmented communities may have lower levels of social capital, which can lead to worse public policies. It also examines the effects of ethnic fragmentation on firms in developing countries, finding that ethnic diversity can affect productivity and economic performance. The paper concludes that while ethnic diversity can have both positive and negative effects on economic performance, the overall impact depends on the specific context and the nature of the ethnic diversity. The authors suggest that further research is needed to better understand the relationship between ethnic diversity and economic performance.