Economic Benefits of Ethnolinguistic Diversity: Implications for ...

Doran (2001) concluded with the message that “in the twenty-first century, breakup of the nation-state is not the answer to society’s shortcomings” (p. 249). The tensions arising from the ethnic and cultural diversity of society should be managed not by secessions but rather by the institutions developed within democratic pluralism.

Empirical Studies on the State Level

There have been several cross-country studies conducted in the field of political economy that analyze the direct relationship between ethnic diversity and economic performance. Initially, the discussion has focused mainly on the costs of ethnic diversity. The work of William Easterly and Ross Levine (1997), which became a benchmark in the field, depicted a gloomy picture of ethnic diversity. In their study, ethnic diversity was linked with a lower rate of economic growth. The cross-country regression analysis indicated that going from complete homogeneity to complete heterogeneity is associated with a 2.3% fall in economic growth.

According to Easterly and Levine (1997), the negative impact of ethnic diversity can be explained by the fact that ethnically fragmented economies may find it difficult to agree on public goods and good policies. The results of their analysis lend support to the theories in political economy that suggest interest group polarization leads to competitive rent seeking by the different groups and reduces the consensus on public goods such as infrastructure, education, and good policies, which in the long run creates growth tragedies.

Africa is depicted in the study as a primary example of the negative impact of ethnic diversity on economic growth. According to Easterly and Levine (1997), Africa’s high ethnic fragmentation explains a significant part of Africa’s poor policies and slow growth. They stated that while the evidence from their study regarding the direct link between ethnic diversity and growth is more ambiguous, the evidence regarding the indirect link between ethnic diversity and growth, through the choice of poor public policies, is strong and significant.