Session 2a: Values And Economic Growth

Modern political economy stresses “society's polarization†as a determinant of development outcomes. Among the most common forms of social conflict are class polarization and ethnic polarization. The paper links the existence of class polarization to exogenous country characteristics such as resource endowments, along the lines of the provocative economic-history thesis of Engerman and Sokoloff that tropical commodity exporters are more unequal than other societies. This hypothesis is confirmed with cross-country data. This makes it possible to use resource endowments as instruments for inequality. A higher share of income for the middle class and lower ethnic polarization are empirically associated with higher income, higher growth, more education, better health, better infrastructure, better economic policies, less political instability, less civil war and ethnic minorities at risk, more social “modernization†and more democracy.