In this paper we consider the link often alleged between ethnic diversity and the growth rate of GDP per capita. We first assume that it is ethnic polarization rather than ethnic fragmentation that is harmful for growth so that the relationship may be non-linear. Second, we hypothesize that the impact of ethnic diversity on growth may depend on communication costs. This leads us to estimate a traditional growth rate equation on cross sectional data in a switching regression framework. In "low communication costs countries", the relationship between growth and ethnic diversity is U-shaped. On the other hand, in "high communication costs countries", growth is a decreasing function of ethnic diversity and the severity of the latter's deleterious impact is an increasing function of communication costs, proxied here by the illiteracy rate. The regime that a country belongs to is a function of two proxies for communication costs: the illiteracy rate and population density. The impact of ethnic diversity on growth seems not to operate through macroeconomic policy choices. Rather it is a direct transmission mechanism, in which ethnic diversity affects private and public resource allocation, that appears to dominate.
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Paper provided by Centre for the Study of African Economies, University of Oxford in its series Working Papers Series with number
2000-20.
Length: 22 pages Date of creation: 2000 Date of revision: Handle: RePEc:fth:oxesaf:2000-20
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Find related papers by JEL classification: O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence J70 - Labor and Demographic Economics - - Labor Discrimination - - - General
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