Migration, Diversity, and Economic Development: Post-WWII Displacement in Poland

Abstract

This project examines the impact of cultural heterogeneity on the long-run trajectory of social and economic development. I argue that heterogeneity not only weakens informal enforcement mechanisms that rely on shared norms and networks, but also creates demand for formal (public-order) institutions provided by the state. I further argue that the predominance of formal over informal institutional mechanisms in more heterogeneous communities can lead to divergent economic outcomes in the long run. When formal institutions are weak or predatory, informal enforcement can act in their place and facilitate economic exchange. When formal institutions adequately protect private property and enforce contracts, however, greater reliance on formal institutions facilitates arm’s length transactions and can lead to greater wealth and entrepreneurship rates. I provide empirical evidence for this argument by drawing on micro-level historical data on population transfers following the shift in Poland’s borders in 1945, one of the largest episodes of forced migration in Europe’s recent history. The border changes triggered resettlement of nearly six million people, or one-fifth of Poland’s pre-war population, from the USSR, Central Poland, and Western and Southern Europe into the communities abandoned by ethnic Germans. Arbitrary resettlement procedures produced varying degrees of cultural heterogeneity at the local level. I collected rich data on the origins and distribution of migrants, as well as on a number of social and economic outcomes in the resettled communities, to trace the development of heterogeneous and homogeneous communities through major changes in the institutional environment over a fifty-year period. I show that more homogeneous communities were more likely to establish organizations for the provision of local public goods, such as volunteer fire brigades, while more heterogeneous communities faced greater coordination challenges and eventually came to rely on state institutions for public goods provision and norm enforcement. The greater role played by formal institutions in more heterogeneous communities provided no tangible economic benefits during state socialism, when private property was poorly protected and individual economic activity heavily restricted. When Poland transitioned to a market economy, however, the fortunes of homogeneous and heterogeneous communities diverged. I draw on statistical data to demonstrate that diversity of migrant communities in the 1940s is positively associated with per capita incomes and entrepreneurship rates in the 1990s. I also use contemporary survey data to show that respondents in more historically diverse communities express greater confidence in formal institutions and related state organizations and that firms operating in more diverse communities report fewer obstacles to doing business. My findings challenge the long-standing consensus in the social science literature that heterogeneity undermines public goods provision and economic growth and suggest that a society can minimize the costs and maximize the benefits of diversity by adopting appropriate institutional mechanisms.