Economic Benefits of Ethnolinguistic Diversity: Implications for ...

Counterintuitively, the authors still supported the creation of smaller and more homogeneous states. They argued that with free trade, countries can be small and homogeneous, which allows them to enjoy the benefits of homogeneity (as far as public goods provision is concerned) and the benefits of diversity in production coming from international trade. Alesina and Spolaore said that promoting racial homogeneity is “unappealing and probably incorrect,” but still they argued that secessions should not be perceived as threatening. “To the extent that small countries can prosper in a world of free trade, then peaceful separatism of certain minorities should not be viewed as threatening, at least from an economic point of view” (p. 29).

The authors brought forward the study conducted on American localities by Edward L. Glaeser, José A. Scheinkman, and Andrei Shleifer (1995) as a support for their proposition that small and more homogeneous units are more viable in a situation of diverse environment. The study found that in the cities with large nonwhite communities, segregation is positively correlated with population growth. According to Alesina and La Ferrara (2004), those results suggested that growth is higher when racial interaction is lower. The explanation behind it is that segregation allows the group to avoid the costs of diversity and take advantage of the benefits of diversity at the same time. “A suggestive interpretation of these results that goes back to our model may be that racial fractionalization with segregation may allow for diversity in production and lower interaction in public good consumption and social activity” (p. 11).

As far as domestic policies are concerned, Alesina and La Ferrara (2004) argued that the issue at stake is to what extent the policies promote racial integration. They made a case that the type of democracy that is most likely to promote harmony among diverse people is the consociational democracy based on power sharing among different segments of the society, a concept developed by Arend Lijphart (1977). They argued, however, that due to certain requirements that are necessary for the system to function, the consociational democracy is difficult to implement and ultimately unstable in some developing countries.