Inequality and fractionalization

Casey, Gregory P. and Owen, Ann L. (2010): Inequality and fractionalization.

Abstract

We present evidence that ethnic fragmentation explains variations in per capita income, institutions, and schooling better than income inequality when both are treated as endogenous. To do so, we identify instruments for ethnic fractionalization and income inequality based on historical experience. Using instrumental variables estimation, we find that ethnic fractionalization explains the level of income both when income inequality is included as a control in the estimation and when it is not. However, we find no evidence that income inequality affects the level of income when ethnic fractionalization is properly treated as an endogenous variable. We have similar findings when other development outcomes such as schooling or proxies for institutional quality are used as dependent variables. These results are robust to various controls and changes in the sample size and suggest that some of the previous findings regarding the effect of income inequality on development should be attributed to ethnic fractionalization.

• Item Type: MPRA Paper
• Language: English
• Keywords: inequality; ethnic fractionalization; colonization
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources ; Human Development ; Income Distribution ; Migration

References

Acemoglu, Daron, and Robinson, James, 2000. Why did Western Europe extend the franchise?: democracy, inequality, and growth in historical perspective. Quarterly Journal of Economics 115, 1167–200.

Acemoglu, Daron, Johnson, Simon, and Robinson, James, 2001a. The colonial origins of comparative development. American Economic Review 91 (5), 1369–1401.

Daron Acemoglu & James A. Robinson, 2001b. "A Theory of Political Transitions," American Economic Review, American Economic Association, vol. 91(4), pages 938-963, September

Acemoglu, Daron, Johnson, Simon, Robinson, James, 2002. Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution. Quarterly Journal of Economics, Vol. 117, 1231–1294.

Acemoglu, Daron, Johnson, Simon, Robinson, James, 2005. Institutions as the fundamental determinant of long term growth. In: Aghion, Philippe, Durlauf, Steven (Eds.), Handbook of Economic Growth. Elsevier.

Acemoglu, Daron, 2005. "Politics and economics in weak and strong states," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1199-1226, October

Acemoglu,Daron & Robinson,James A., 2006a. "Economic Origins of Dictatorship and Democracy." Cambridge University Press, Cambridge.

Acemoglu, Daron and Robinson, James, 2006b. De Facto Political Power and Institutional Persistence. American Economic Review 96(2), 325-330.

Acemoglu, Daron, and Robinson, James, 2008a. Persistence of powers, elites and institutions. American Economic Review 98:267-93.

Acemoglu, Daron and Robinson, James, 2008b. The Persistence and Change of Institutions in the Americas. Southern Economic Journal 75 (2): 282-299.

Daron Acemoglu & Georgy Egorov & Konstantin Sonin, 2009. "Political Selection and Persistence of Bad Governments," NBER Working Papers 15230, National Bureau of Economic Research, Inc

Daron Acemoglu & Davide Ticchi & Andrea Vindigni, 2009. "Persistence of Civil Wars," NBER Working Papers 15378, National Bureau of Economic Research, Inc

Daron Acemoglu & Davide Ticchi & Andrea Vindigni, 2010. "A Theory of Military Dictatorships," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 1-42, January.

Aghion, Philippe and Patrick Bolton, 1997. A Theory of Trickle-Down Growth and Development. Review of Economic Studies, 64, 151–172.

Alesina, Alberto., and Drazen,Allan, 1991. Why Are Stabilizations Delayed? American Economic Review, 80, 1170-1188.

Alesina, Alberto, Baqir, Reza, and Easterly,William, 1999. Public goods and ethnic divisions. Quarterly Journal of Economics CXIV (4), 1243–1284.

Alesina, Alberto, Rodrik, Dani, 1994. Distributive politics and economic growth. Quarterly Journal of Economics 108, 465–490.

Alesina, Alberto, Ozler, Sule, Roubini, Nouriel, Swagel, Phillip, 1996. Political instability and economic growth. Journal of Economic Growth 1 (2), 189–211 (June).

Alesina, Alberto., and Spolaore, Enrico, 1997. On the number and size of nations. Quarterly Journal of Economics, CXII, 1027-1056.

Alesina, Alberto, Reza Baqir, and Caroline Hoxby. 2004. “Political Jurisdictions in Heterogeneous Communities.” Journal of Political Economy, 112(2): 348–96.

Alesina, Alberto, and Eliana La Ferrara. 2000. “Participation in Heterogeneous Communities.” Quarterly Journal of Economics, 115(3): 847–904.

Alesina, Alberto, Edward L. Glaeser, and Bruce Sacerdote. 2001. “Why Doesn’t the United States Have a European-Style Welfare State?” Brookings Papers Econ. Activity, no. 2, pp. 187–278.

Alesina, Alberto, and Eliana La Ferrara. 2002. “Who Trusts Others?” Journal of Public Economics, 85(2): 207–34.

Alesina, Alberto, et al, 2003. " Fractionalization," Journal of Economic Growth, Springer, vol. 8(2), pages 155-94, June.

Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.

Benn, Denis. The Caribbean: An Intellectual History 1774-2003. Ian Randle Publishers: Miami, 2004.

Besley, Timothy and Robinson, James, 2010. .Quis Custodiet Ipsos Custodens: Civilian Control over the Military. Journal of the European Economic Association Papers and Proceedings, forthcoming.

Clarke, G.1995. “More Evidence on Income Distribution and Growth,” Journal of Development Economics 47: 403-427.

Deininger, K. and L. Squire. 1998. “New ways of looking at old issues: inequality and growth,” Journal of Development Economics 57: 259–287

Easterly, William, 2001. The middle class consensus and economic development. Journal of Economic Growth 6 (4), 317–336.

Easterly, William, 2001b. Can Institutions Resolve Ethnic Conflict? Economic Development and Cultural Change, 49(4), 687-706.

Easterly, William, 2007. Inequality does cause underdevelopment: insights from a new instrument. Journal of Development Economics 84: 55–776.

Easterly, William and Levine, Ross, 1997a. Africa's growth tragedy: policies and ethnic divisions. Quarterly Journal of Economics 152 (4), 1203–1250.

Easterly, William and Levine, Ross, 2003. Tropics, germs, and crops: the role of endowments in economic development. Journal of Monetary Economics 50 (1).

Easterly, William; Ritzen, Jozef; Woolcock, Michael, 2006. Social cohesion, institutions and growth. Economics and Politics, 18 (2), 103-120.

Easterly, W. 2007. “Inequality Does Cause Underdevelopment: Insights from a New Instrument,” Journal of Economic Development 84: 755–776.

Engerman, Stanley, and Sokoloff, Kenneth, 2006. Colonialism, inequality and the long-run paths of Development. In: Benerjee, Abhijit, Benabou, Roland and Mookherjee, Dilip (Eds.), Understanding Poverty. Oxford University Press, New York, NY. Engerman, Stanley, and Sokoloff, Kenneth, 2000. Institutions, factor endowments and paths of development in the New World. Journal of Economic Perspectives 14 (3): 217-232. Engerman, Stanley, Sokoloff, Kenneth, 1997. Factor endowments, institutions, and differential paths of growth among new world economies: a view from economic historians of the United States. In: Haber, Stephen (Ed.), How Latin America Fell Behind. Stanford University Press, Stanford CA.

Engerman, Stanley L., Sokoloff, Kenneth L, 2005. “The evolution of suffrage institutions in the Americas,” Journal of Economic History 65 (4), 891–921.

Freeman, Richard, 2006. People Flows in Globalization. Journal of Economic Perspectives, 20, 145–170.

Galor, Oded. and Moav, Omer, 2004, "From Physical to Human Capital Accumulation: Inequality and the Process of Development," Review of Economic Studies 71: 1001-1026.

Galor, Oded. and Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies 60: 35-52.

Galor, Oded. 2009a. "Inequality and Economic Development: An Overview," Working Papers 2009-3, Brown University, Department of Economics.

Galor, Oded. (ed). Inequality and Economic Development: A Modern Perspective. Edward Elgar Publishing, 2009b.

Glaeser, Edward L., David Laibson, Jose A. Scheinkman, and Christine L. Soutter. 2000. “Measuring Trust.” Quarterly Journal of Economics, 115(3): 811–46.

Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 2002. "Governance matters II - updated indicators for 2000-01," Policy Research Working Paper Series 2772, The World Bank.

La Porta, Rafael, Lopez-de-Silanes, Florencio, Shleifer, Andrei, Vishny, Robert W., 1998. Law and finance. Journal of Political Economy 106 (6), 1113–1155 (December).

La Porta, Rafael, Lopez-de-Silanes, Florencio, Shleifer, Andrei, Vishny, Robert, 1999. The quality of government. Journal of Law, Economics, and Organization 15, 222–279.

Anna Maria Mayda, 2005. "International Migration: A Panel Data Analysis of Economic and Non-Economic Determinants," IZA Discussion Papers 1590, Institute for the Study of Labor (IZA).

Stelios Michalopoulos, 2008. "The Origins of Ethnolinguistic Diversity: Theory and Evidence," Discussion Papers Series, Department of Economics, Tufts University 0725, Department of Economics, Tufts University.

Miguel, Edward, and Mary Kay Gugerty. 2005. “Ethnic Diversity, Social Sanctions, and Public Goods in Kenya.” Journal of Public Economics, 89, 2325-2368

Persson, Torsten, Tabellini, Guido, 1994. Is inequality harmful for growth? American Economic Review 84, 600–621. Poterba, James M. 1997. “Demographic Structure and the Political Economy of Public Education.” Journal of Policy Analysis and Management, 16(1): 48–66.

Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, 06. World Bank, 2005.World Development Indicators, Various years.

World Institute for Development Economics Research (WIDER), 2000, World Income Inequality Database, Version 1.0.