Diversity versus tolerance: the social drivers of innovation and entrepreneurship

Popularised by the work of Richard Florida, the role of tolerance, openness and social or cultural diversity in urban development has gained much attention. Recent literature on urban and regional economics has found associations between these social factors and technology, entrepreneurship, innovation, housing and economic performance. In most of these studies, the terms tolerance, openness and diversity are generally conflated or interchangeably used. This article argues that diversity’s impacts on innovation and entrepreneurship are notably different from tolerance and openness and that diversity should be defined and measured differently from tolerance and openness. This article uses data of US metropolitan areas to examine the statistical difference between diversity and tolerance, and compares the effect of each on innovation and entrepreneurship in multivariate analysis. Diversity is mea-sured using the Herfindahl–Hirschman index based on countries of birth, while tol-erance is measured using the composite gay and bohemian index. 1