In this paper, we explore the effects of dialectal diversity on economic performance by
drawing evidence from Chinese prefecture-level cities. Our dataset is a panel of 5-year average data
over the period from 2001 to 2015 including 274 cities. We compute five indices of Chinese dialectal
diversity: 1. Dialectal fractionalization; 2. Adjusted dialectal fractionalization; 3. Dialectal polarization;
4. Adjusted dialectal polarization and 5. Periphery heterogeneity. We find that dialectal
fractionalization and dialectal polarization as well as periphery heterogeneity have a positive effect
on both income per capita and economic growth. Adjusted dialectal fractionalization exhibits a
positive effect only on the change in economic growth over time. However, adjusted dialectal
polarization does not show any robust effects. Furthermore, the experience of being governed by the
Chinese Communist Party during the revolutionary war inhibits the negative effects of dialectal
diversity in eastern China, while it has persistent negative effects in central and north-eastern regions
of the country
