Implications of ethnic diversity

Abstract

Ethnically differentiated societies are often regarded as dysfunctional, with poor economic performance and a high risk of violent civil conflict. I argue that this is not well founded. I distinguish between "dominance", in which one group constitutes a majority, and "fractionalization", in which there are many small groups. In terms of overall economic performance, I show that both theoretically and empirically, fractionalization is normally unproblematic in democracies, although it can be damaging in dictatorships. Fractionalized societies have worse public sector performance, but this is offset by better private sector performance. Societies characterized by dominance are in principle likely to have worse economic performance, but empirically the effect is weak. In terms of the risk of civil war, I show that both theoretically and empirically fractionalization actually makes societies safer, while dominance increases the risk of conflict. A policy implication is that fractionalized societies are viable and secession should be discouraged.