Does ethnic diversity decrease economic interactions? Evidence from exchange networks in rural Gambia

Using a unique dataset collected in 59 rural Gambian villages, we study how ethnic heterogeneity is related to the structure of four economic exchange networks: land, labor, inputs and credit. We find that different measures of village-level ethnic fragmentation are mostly uncorrelated with network structure. At a more disaggregated level, household heads belonging to ethnic minorities are not less central than those from the predominant ethnicity in any of the networks and, at the dyadic level, the fact that two households share ethnicity is not an economically significant predictor of link formation. Our results indicate that, in the particular setting of our study, the structure of the exchange networks is better defined by other variables than ethnicity, and that ethnic heterogeneity is unlikely to be a driver for sub-optimal economic exchanges. We argue that our findings can be interpreted in a causal way as the current distribution of ethnic groups in rural Gambia is largely influenced by specific historical features of the British colonial administration. Moreover, the network structure of our data allow us to include fixed effects at different levels as well as to precisely measure kinship ties, a confounding variable often omitted in previous studies.