Abstract
We use a standard growth regression model and show that ethnic tensions reduce per capita growth rates. We also find evidence that “good” economic and political institutions improve per capita growth rates. More importantly, good economic institutions mitigate the effect of ethnic tensions on per capita growth while good political institutions do not. Consequently, it is foremost capitalist freedom that promotes peace and development.
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Notes
- 1.
Easterly (2001) illustrates this by using a cocoa plantation as an example. A country may have a growth promoting comparative advantage in the plantation—but rent seeking ethnic groups with an incentive to try and get as large a slice of the plantation pie as possible reduce the incentive of producers to increase the size of the pie. In other words, the plantation languishes and the country does not grow.
- 2.
Interestingly enough Collier points out that conflict is lowest in African countries with many equally small ethnic groups, i.e., extremely diverse countries. He attributes this to the high cost of raising armies from groups that are small to begin with.
- 3.
Easterly and Levine (1997) is the most direct point of departure for our paper. We have therefore tried to keep the basic structure of that model. In addition much of our reasoning is based on that paper as well.
- 4.
It may be possible, in a different paper, to test the hypothesis that a focus on democratic process without any attempt at building economic institutions may actually hinder the development process. Indeed the correlation between poor institutions and high ethnic conflict, Keefer and Knack (2002) and Easterly et al. (2006) may provide indirect support for this hypothesis. Such a finding would be consistent with the thrust of this paper.
- 5.
We do not report these specifications here to preserve consistency across Tables 10.3 and 10.4. The limited degrees of freedom in the pre- and post-cold war periods reported in models 5 through 10 in Table 10.4 make the inclusion of a time trend variable impracticable for those specifications. Results for all our specifications with the time trend included are available on request.
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Choudhary, A.B., Reksulak, M. (2019). Reducing the Impact of Ethnic Tensions on Economic Growth: Economic or Political Institutions?. In: Hall, J., Harper, S. (eds) Economic and Political Institutions and Development. Springer, Cham. https://doi.org/10.1007/978-3-030-06049-7_10
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