Economic Benefits of Ethnolinguistic Diversity: Implications for ...

Collier laid out a theoretical argument that purported that ethnic diversity—while in general not associated with lower economic growth or the risk of civil conflict—might be damaging when it takes the form of dominance, when the country is a dictatorship, and when the sector under consideration is the public sector.

The results of the empirical analysis provided support for his theoretical argument. The study showed that fractionalization is normally unproblematic in democratic regimes; however, it can be destructive in dictatorial regimes. Moreover, it showed that ethnic diversity has no adverse effects on growth in fully democratic societies, but it reduces growth up to 3% in dictatorships.

According to Collier (2001), the reason why ethnic diversity has negative impacts on growth in dictatorships is because, in such regimes, it is more likely that even a remarkably small ethnic group can seize and maintain power to their own advantage. In such situations, the group chooses the redistribution to itself at the expense of the growth of the whole economy. In democracies, such a situation is not possible, except in circumstances of ethnic dominance when the size of the group is around 50%, which gives the group enough majority to control the national policy of the country.

In cases of ethnic dominance and regardless of the political system, ethnic diversity will have a negative impact on the growth of the economy. The results of Collier’s study (2001) showed that countries characterized by dominance are, in principle, likely to have worse economic performance, although empirically the effect is weak.

According to Collier (2001), the reason why ethnic fractionalization has no adverse impact on economic growth in democracies is related to the fact that the negative impact of ethnic diversity on a public sector is offset by its positive effects on the private sector. The possible reason for the differential effects of ethnic diversity is that in the public sector, the benefit for the group is to capture rents, whereas in the private sector it is to enhance productivity. Therefore, ethnic diversity is likely to decrease the productivity of public capital, but it is also likely to increase the productivity of private capital.