Neighbourhood ethnic diversity and mental health in Australia.

We present the first study that empirically examines the effects of neighbourhood ethnic diversity on mental health. Using 16 waves of longitudinal data from the Household, Income and Labour Dynamics in Australia survey, we find that ethnic diversity is negatively associated with mental health. Our preferred estimates, using lagged ethnic diversity at the state level to instrument for neighbourhood ethnic diversity, suggest that a standard deviation increase in ethnic diversity is associated with a decline of 0.092-0.129 standard deviations in mental health. This result is robust to alternative estimation approaches to addressing endogeneity of ethnic diversity and alternative ways of measuring ethnic diversity and irrespective of whether mental health is measured with the Mental Health Inventory scale or the Kessler Psychological Distress Scale (K10). We further find that ethnic diversity influences mental health through the level of neighbourhood trust. Our findings point to the need to develop policies that promote social inclusion in multicultural societies and build trust between heterogeneous ethnic groups as a vehicle to improve mental health.