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On the Role of Democracy in the Ethnicity-Growth Relationship: Theory and Evidence

  • Sugata Ghosh

    ()

  • Andros Gregoriou

    ()

  • Anirban Mitra

    ()

We study the relationship between ethnic diversity and economic performance and, in particular, focus on economic growth under democracy and dictatorship. We build a theory which emphasizes the public spending channel, and show that the relationship between public spending and ethnic diversity is qualitatively different under the two regimes. Our model also delivers that if the dictator is sufficiently corrupt, then growth is bound to be higher under a democracy irrespective of the degree of ethnicity. We then consider a panel of the most and least ethnically diverse nations and address potential endogeneity problems. Our empirical results robustly show that democracy has a significantly positive effect on growth, irrespective of the degree of ethnicity. We also show that the marginal effect of ethnicity on growth in the presence of democracy is always positive, irrespective of the type of estimator used. Finally, we establish that the negative marginal impact of increases in ethnicity can always be overcome by democracy.

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Paper provided by Centre for Economic Development and Institutions(CEDI), Brunel University in its series CEDI Discussion Paper Series with number 13-02.

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Length: 35 pages
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:edb:cedidp:13-02
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  2. Raquel Fernández & Gilat Levy, 2005. "Diversity and redistribution," LSE Research Online Documents on Economics 544, London School of Economics and Political Science, LSE Library.
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  9. Baqir, Reza & Easterly, William & Alesina, Alberto, 1999. "Public Goods and Ethnic Divisions," Scholarly Articles 4551797, Harvard University Department of Economics.
  10. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-88, December.
  11. Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. " Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, vol. 1(3), pages 363-89, September.
  12. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  13. Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu, Zou, 1996. "The composition of public expenditure and economic growth," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 313-344, April.
  14. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
  15. David Roodman, 2007. "A Note on the Theme of Too Many Instruments," Working Papers 125, Center for Global Development.
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  18. Atin Basuchoudhary & William Shughart, 2010. "On Ethnic Conflict And The Origins Of Transnational Terrorism," Defence and Peace Economics, Taylor & Francis Journals, vol. 21(1), pages 65-87.
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  20. William Shughart, 2006. "An analytical history of terrorism, 1945–2000," Public Choice, Springer, vol. 128(1), pages 7-39, July.
  21. Castelló-Climent, Amparo, 2008. "On the distribution of education and democracy," Journal of Development Economics, Elsevier, vol. 87(2), pages 179-190, October.
  22. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
  23. Roubini, Nouriel & Swagel, Phillip & Ozler, Sule & Alesina, Alberto, 1996. "Political Instability and Economic Growth," Scholarly Articles 4553024, Harvard University Department of Economics.
  24. Bluedorn, John C., 2001. "Can democracy help? Growth and ethnic divisions," Economics Letters, Elsevier, vol. 70(1), pages 121-126, January.
  25. Sugata Ghosh & Andros Gregoriou, 2008. "The composition of government spending and growth: is current or capital spending better?," Oxford Economic Papers, Oxford University Press, vol. 60(3), pages 484-516, July.
  26. Pereira, Carlos & Kuhl Teles, Vladimir, 2009. "Political institutions as substitute for democracy: a political economy analysis of economic growth," Textos para discussão 196, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  27. Barro, Robert J, 1996. " Democracy and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 1-27, March.
  28. Hristos Doucouliagos & Mehmet Ulubasoglu, 2006. "Democracy and Economic Growth: A Meta-Analysis," Economics Series 2006_04, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  29. Biorn, Erik & Klette, Tor Jakob, 1999. " The Labour Input Response to Permanent Changes in Output: An Errors-in-Variables Analysis Based on Panel Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(3), pages 379-404, September.
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  31. Wittman, Donald, 1989. "Why Democracies Produce Efficient Results," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1395-1424, December.
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