Why ethnic fractionalization? Polarization, ethnic conflict and growth

This paper ia an attempt to clarify the relationship between fractionalization, polarization and conflict. The literature on the measurement of ethnic diversity has taken as given that the proper measure for heterogeneity can be calculated by using the fractionalization index. This index is widely used in industrial economics and, for empirical purposes, the ethnolinguistic fragmentation is ready available for regression exercises. Nevertheless the adequacy of a synthetic index of hetergeneity depends on the intrinsic characteristics of the heterogeneous dimension to be measured. In the case of ethnic diversity there is a very strong conflictive dimension. For this reason we argue that the measure of heterogeneity should be one of the class of polarization measures. In fact the intuition of the relationship between conflict and fractionalization do not hold for more than two groups. In contrast with the usual problem of polarization indices, which are of difficult empirical implementation without making some arbitrary choice of parameters, we show that the RQ index, proposed by Reynal-Querol (2002), is the only discrete polarization measure that satisfies the basic properties of polarization. Additionally we present a derivation of the RQ index from a simple rent seeking model. In the empirical section we show that while ethnic polarization has a positive effect on civil wars and, indirectly on growth, this effect is not present when we use ethnic fractionalization.