Ethnic diversity and poverty: the role of institutional quality

The main objective of this study is to analyze the role of institutional quality in the effect of ethnic diversity on poverty. The empirical analysis covers a sample of 96 countries. The main results obtained using the Ordinary Least Square and Two-Staged Least Square approaches show that ethnic diversity has a positive effect on poverty, but the extent of this effect depends on the quality of institutions. Ethnic diversity contributes significantly to the increase in poverty in countries with poor institutional quality, while in countries with good institutional quality, its effect is not significant. When the quality of institutions is poor, ethnically diverse countries generally experience major problems of inequality arising from discrimination, social exclusion, and social polarization. One of the main consequences of these problems is the increase in poverty. As a key policy implication, policymakers in ethnically diverse countries should improve the quality of their institutions as a priority to address the issue of poverty.