We present a comprehensive multi-scale test of the diversity-deficit hypothesis that posits a negative association between diversity and development. We develop a ‘scale-flip hypothesis’ that formalises how the political salience of diversity is contingent on the level of analysis. We also contribute to the political economy of public goods literature using the largest dataset used to date – n ≈ 1.2 million village-year points from a two-period panel of all villages in the Indian national census data. We find evidence for ‘scale-flip’ so that there is a robust positive association between diversity and public goods at the local level.