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Cited by 7Culture, Economy, and Development StudiesMonetary Policy and Economic ImpactEconomic Growth and Development

Diversity Matters in the World of Finance: Does Ethnic and Religious Diversity Hinder Financial Development in Developing Countries?

Open access
Amin, Saqib, Murshed, Syed Mansoob·2025·The Developing Economies
DOI 10.1111/deve.12434
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Abstract

This paper investigates the relationship between ethnic and religious diversity ( ED and RD ) and financial development using the data from 102 developing countries. It is widely accepted that financial depth and the more ready availability of finance have a central role to play in fostering economic growth. We hypothesize that financial development in developing countries, especially those at the early stages of economic development, may be retarded by preexisting ED and RD , which may produce conflict. However, we believe that this risk can be moderated by sound institutional functioning, including good governance and democracy. Financial development is measured using M2 and private credit, both as a percentage of GDP, while ED and RD is measured using the Alesina fragmentation index. Our results are supportive of our hypothesis that ED and RD can indeed hamper financial development; these risks, however, are mitigated by well‐functioning institutional arrangements.

Integrity signals

Registry

Crossref · 10.1111/deve.12434

Cites

57 of 57 references verified0 citation errors · 0 not checkable

Statistics

Nothing to recompute.

Claims the paper makes

4 of 42 cited sources checked · 0 supported · 0 flagged · accuracy not yet measured

  • Premisecitation

    Ethnic diversity creates more conflict in society.

    “First, ethnic diversity creates more conflict in society, which results in low incomes, low levels of schooling, and insufficient infrastructure (Alesina and Rodrik 1994;Alesina and Spolaore 1997;Easterly and Levine 1997).”
    Quote in the paperSubstantial claim1 of 3 sources checked
    • cites Alesina and Rodrik 1994 source

      The Introduction (p. 3) links distributive conflict between workers and capitalists to economic growth through taxation and public spending. It does not establish that ethnic diversity creates conflict, or that such conflict causes low schooling and insufficient infrastructure; the source addresses a different kind of division. (LLM, conf=0.82)

      Experimental — accuracy not yet measured
    • cites Alesina and Spolaore 1997 source
    • cites Easterly and Levine 1997 source
  • Premisecitation

    Democracy provides an environment conducive to cultivating institutions that serve the common good and mitigate the detrimental effects of fragmentation on financial development.

    “While democracy may not ensure perfection, it provides an environment conducive to cultivating institutions that serve the common good and mitigate the detrimental effects of fragmentation on financial development (Levy and Fukuyama 2010).”
    Quote in the paperNot a substantial claim1 of 1 sources checked
    • cites Levy and Fukuyama 2010 source

      The indexed passages are catalog text and descriptions of other publications, rather than identifiable sections or pages of the cited paper. Searches for democracy, fragmentation, and financial development found no passage in our copy addressing the claimed relationship, so the attribution cannot be verified. (LLM, conf=0.70)

      Experimental — accuracy not yet measured
  • Findingown data

    The effect of diversity on financial development is strongly dependent upon institutions and the presence of democracy.

    “We observe that the effect of diversity is strongly dependent upon institutions and the presence of democracy.”
    Quote in the paperSubstantial claim
    • Rests on an assumption: System GMM is better suited for mitigating the endogeneity problem with a minimum standard error.
  • Findingown data

    In developing countries, religious diversity has a negative but statistically insignificant effect on DEPTH (M2 as a percentage of GDP).

    “However, RD shows a negative but insignificant impact on DEPTH.”
    Quote in the paperNot a substantial claim
    • Rests on an assumption: Diversity is basically time-invariant, with very nominal change occurring over a long period.
  • Findingown data

    In developing countries, a one-unit increase in ethnic diversity reduces PRIVATE (credit to the private sector as a percentage of GDP) by 5.31, 5.41, 5.63, 5.50, and 5.80 in regressions with various democracy variables, and by 6.66 in the regression with INST.

    “In the case of PRIVATE (columns 9-14), a one-unit increase in ethnic diversity sees PRIVATE decline by 5.31, 5.41, 5.63, 5.50, and 5.80 (column 9-13) in regressions incorporating various democracy variables and by 6.66 (column 14) in the regression incorporating INST).”
    Quote in the paperSubstantial claim
    • Rests on an assumption: Diversity is basically time-invariant, with very nominal change occurring over a long period.
  • May combine two claims. 18
  • Classified as probably not a substantial claim. 21

  • May combine two claims.

    Premisecitation

    Conflict from ethnic diversity results in low incomes, low levels of schooling, and insufficient infrastructure.

    “First, ethnic diversity creates more conflict in society, which results in low incomes, low levels of schooling, and insufficient infrastructure (Alesina and Rodrik 1994;Alesina and Spolaore 1997;Easterly and Levine 1997).”
    Quote in the paperSubstantial claim1 of 3 sources checked
    • cites Alesina and Rodrik 1994 source

      The Introduction (p. 2) links distributive conflict between labor and capital to economic growth and public investment; Section 5 (p. 29) reports that income inequality is associated with weaker growth in democracies. The paper does not establish that ethnic diversity causes conflict or that such conflict produces low income levels, low schooling levels, or insufficient infrastructure. (LLM, conf=0.82)

      Experimental — accuracy not yet measured
    • cites Alesina and Spolaore 1997 source
    • cites Easterly and Levine 1997 source

  • Probably not a substantial claim: may not pass S3 (load-bearing).

    Premisenone given

    The Alesina fractionalization index has widely been used in empirical analysis.

    “However, Alesina's fractionalization index has widely been used in empirical analysis.”
    Quote in the paperNot a substantial claim1 of 1 sources checked
    • cites Alesina et al. 2003 source

      The Introduction says a measure of ethnic fractionalization had become a standard control in cross-country regressions, and Section 2.1 introduces the authors’ new measures. But Section 2.2 identifies the index usually used in earlier literature as one based on Soviet data. The copy does not establish that the new Alesina index itself had been widely used. (LLM, conf=0.84)

      Experimental — accuracy not yet measured

  • May combine two claims.

    Findingown data

    In developing countries, religious diversity has a negative but statistically insignificant effect on PRIVATE (credit to the private sector as a percentage of GDP), except in the regression incorporating INST where the effect is -3.69.

    “However, RD shows a negative but insignificant impact on PRIVATE, except for the regression incorporating INST at À3.69 (column 14).”
    Quote in the paperNot a substantial claim
    • Rests on an assumption: Diversity is basically time-invariant, with very nominal change occurring over a long period.

  • May combine two claims.

    Findingown data

    In developing countries, a one-unit increase in ethnic diversity reduces DEPTH (M2 as a percentage of GDP) by 2.58, 2.72, 2.92, 2.72, and 2.66 in regressions with various democracy variables, and by 1.87 in the regression with INST.

    “Table 1 shows that for a one-unit increase in ethnic diversity, DEPTH is deteriorated by 2.58, 2.72, 2.92, 2.72, and 2.66 (columns 2-6) in regressions incorporating various democracy variables”
    • Also stated in: § 4. RESULTS · plain
      “and by 1.87 (column 7) in the regression incorporating INST.”
    Quote in the paperSubstantial claim
    • Rests on an assumption: Diversity is basically time-invariant, with very nominal change occurring over a long period.

  • May combine two claims.

    Findingown data

    The results reveal a robust relationship between ED and RD and financial development (DEPTH and PRIVATE).

    “Our results reveal a robust relationship between ED and RD and financial development (DEPTH and PRIVATE).”
    Quote in the paperSubstantial claim
    • Rests on an assumption: Diversity is basically time-invariant, with very nominal change occurring over a long period.

  • May combine two claims.

    Findingown data

    Ethnic diversity and various democracy variables and institutions have a negative relationship with financial depth, both for DEPTH and PRIVATE.

    “Although ethnic diversity and various democracy variables and institutions have a negative relationship with financial depth, both for DEPTH and PRIVATE, nonetheless the interaction term of ethnic diversity with various democracy variables and institutions has a positive and significant impact on DEPTH.”
    Quote in the paperSubstantial claim

  • Classified as probably not a substantial claim.

    Premisecitation

    Ethnic diversity has a more adverse effect on economic policy and growth when a government's institutions are poor.

    “Easterly (2001) indicated that ethnic diversity has a more adverse effect on economic policy and growth when a government's institutions are poor.”
    Quote in the paperSubstantial claim0 of 1 sources checked
    • cites Easterly (2001) source

  • Probably not a substantial claim: may not pass S3 (load-bearing).

    Study design and conductnone given

    The stability of the models was tested through post-estimation tests.

    “The stability of the models was tested through post-estimation tests.”
    Quote in the paperNot a substantial claim

  • Probably not a substantial claim: may not pass S4 (based). May combine two claims.

    Interpretationreasoning

    Diverse perspectives and experiences brought about by ethnic diversity can lead to enhanced problem-solving abilities, increased entrepreneurship, and greater market innovation, all of which contribute to a more vibrant and inclusive financial sector.

    “In such contexts, diverse perspectives and experiences brought about by ethnic diversity can lead to enhanced problem-solving abilities, increased entrepreneurship, and greater market innovation, all of which contribute to a more vibrant and inclusive financial sector.”
    Quote in the paperNot a substantial claim

  • Probably not a substantial claim: may not pass S4 (based). May combine two claims.

    Interpretationreasoning

    Ethnic diversity, when coupled with strong democratic institutions, can foster social trust, reduce social tensions, and enhance cooperation, ultimately leading to a more resilient and inclusive financial system.

    “As a result, ethnic diversity, when coupled with strong democratic institutions, can foster social trust, reduce social tensions, and enhance cooperation, ultimately leading to a more resilient and inclusive financial system.”
    Quote in the paperNot a substantial claim

  • Probably not a substantial claim: may not pass S3 (load-bearing).

    Premisecitation

    Forms of violence are not the sole channels through which ethnic fragmentation and its interaction with institutions affect economic growth.

    “However, it is important to note that these forms of violence are not the sole channels through which ethnic fragmentation and its interaction with institutions affect economic growth (Amin 2019).”
    Quote in the paperNot a substantial claim0 of 1 sources checked
    • cites Amin 2019 source

  • Probably not a substantial claim: may not pass S2 (checkable), S4 (based). May combine two claims.

    Interpretationreasoning

    Governance structures ensure the protection of minority rights, promote social cohesion, and provide a conducive environment for diverse voices to be heard and valued.

    “These governance structures ensure the protection of minority rights, promote social cohesion, and provide a conducive environment for diverse voices to be heard and valued.”
    Quote in the paperNot a substantial claim

  • Probably not a substantial claim: may not pass S3 (load-bearing). May combine two claims.

    Premisecitation

    Kim et al. (2020) found that religious diversity and the proportion of the Muslim population exert notable influences on financial development.

    “Their findings suggest that RD and the proportion of the Muslim population exert notable influences on financial development.”
    Quote in the paperNot a substantial claim0 of 1 sources checked
    • cites Kim et al. (2020)

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • Classified as probably not a substantial claim.

    Study design and conductreasoning

    This research utilized the system GMM model with added lagged variables as the instrument to control for endogeneity.

    “Hence, to control for this effect, this research utilized the system GMM model with added lagged variables as the instrument for empirical analysis.”
    Quote in the paperSubstantial claim
    • Rests on an assumption: System GMM is better suited for mitigating the endogeneity problem with a minimum standard error.

  • May combine two claims.

    Premisecitation

    This difficulty brings about two fundamental setbacks that are endemic disorders for financial development: rent-seeking activities and incongruity in public policies.

    “Furthermore, this brings about two fundamental setbacks that are endemic disorders for financial developmentrent-seeking activities and incongruity in public policies (Easterly and Levine 1997).”
    Quote in the paperSubstantial claim0 of 1 sources checked
    • cites Easterly and Levine 1997 source

  • Probably not a substantial claim: may not pass S3 (load-bearing). May combine two claims.

    Premisecitation

    ED and RD can lead to financial deficits, requiring solutions beyond those offered by existing market and government sectors.

    “ED and RD can lead to financial deficits, requiring solutions beyond those offered by existing market and government sectors (Ayob 2018).”
    Quote in the paperNot a substantial claim0 of 1 sources checked
    • cites Ayob 2018

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • May combine two claims.

    Premisecitation

    When using panel data analysis and neglecting country and/or time-specific effects, the model specification can become heterogeneous and parameter estimates can be unreliable and meaningless.

    “When using panel data analysis and neglecting the country and/or timespecific effects that may exist among cross-sections and time-series units, the model specification can become heterogeneous.This can cause the parameter estimates to be unreliable and meaningless (Hsiao 1986).”
    Quote in the paperSubstantial claim0 of 1 sources checked
    • cites Hsiao 1986

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • Probably not a substantial claim: may not pass S3 (load-bearing). May combine two claims.

    Premisecitation

    Churchill and Appau (2020) found a nuanced relationship between fractionalization and MFI financial performance, suggesting both positive effects on financial performance and negative impacts on outreach depth.

    “Their study highlights the nuanced relationship between fractionalization and MFI financial performance, suggesting both positive effects on financial performance and negative impacts on outreach depth.”
    Quote in the paperNot a substantial claim0 of 1 sources checked
    • cites Churchill and Appau (2020)

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • May combine two claims.

    Premisecitation

    Developing countries face a more deep-seated situation because discrimination in society can create prejudice that could lead to lower outcomes.

    “Developing countries face a more deep-seated situation because discrimination in society can create prejudice that could lead to lower outcomes (Becker 1962).”
    Quote in the paperNot a substantial claim0 of 1 sources checked
    • cites Becker 1962 source

  • Classified as probably not a substantial claim.

    Interpretationreasoning

    In countries where democracy is strong and institutions are robust, ethnic diversity may act as a catalyst for innovation, creativity, and economic dynamism.

    “One plausible explanation for this phenomenon could be that in countries where democracy is strong and institutions are robust, ethnic diversity may act as a catalyst for innovation, creativity, and economic dynamism.”
    Quote in the paperSubstantial claim

  • Classified as probably not a substantial claim.

    Study design and conductreasoning

    A fixed-effects model is ideal in this case because it can control for unobserved country and time-fixed effects.

    “However, in this case, a fixed-effects model would be ideal because it can control for unobserved country and time-fixed effects.”
    Quote in the paperSubstantial claim

  • Probably not a substantial claim: may not pass S3 (load-bearing).

    Premisecitation

    Institutional quality is a catalyst for financial sector development across both developed and developing economies.

    “Notably, institutional quality has been identified as a catalyst for financial sector development across both developed and developing economies (Le et al. 2016).”
    Quote in the paperNot a substantial claim0 of 1 sources checked
    • cites Le et al. 2016

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • Probably not a substantial claim: may not pass S3 (load-bearing). May combine two claims.

    Premisecitation

    The prevalence of weak institutions and the presence of extensive unproductive and profit-seeking activities are often linked to the higher socioeconomic costs of a well-functioning state, where economic progress and democratic institutions have deteriorated.

    “The prevalence of weak institutions and the presence of extensive unproductive and profit-seeking activities are often linked to the higher socioeconomic costs of a well-functioning state, where economic progress and democratic institutions have deteriorated (Rodrik 2008;Väyrynen 2003).”
    Quote in the paperNot a substantial claim0 of 2 sources checked
    • cites Rodrik 2008

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

    • cites Väyrynen 2003 source

  • Probably not a substantial claim: may not pass S3 (load-bearing). May combine two claims.

    Premisecitation

    Research based on cultural finance suggests that cultural effects impact a country's financial development, investor behavior, and financial market performance.

    “Much research has been based on cultural finance, suggesting the impact of cultural effects on a country's financial development (Kwok and Tadesse 2006), investor behavior (Breuer et al. 2014), and financial market performance (Chang et al. 2015).”
    Quote in the paperNot a substantial claim0 of 3 sources checked
    • cites Kwok and Tadesse 2006 source
    • cites Breuer et al. 2014

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

    • cites Chang et al. 2015

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • Classified as probably not a substantial claim.

    Study design and conductreasoning

    The study's identification strategy is based on adopting the system GMM technique to address endogeneity problems inherent in the fixed effects model.

    “Our identification strategy is based on adopting the system GMM technique to address endogeneity problems inherent in the fixed effects model.”
    Quote in the paperSubstantial claim
    • Rests on an assumption: System GMM is better suited for mitigating the endogeneity problem with a minimum standard error.

  • Probably not a substantial claim: may not pass S3 (load-bearing). May combine two claims.

    Premisecitation

    A diverse society can cause low morale, which can badly hurt a country's reputational status worldwide.

    “A diverse society can also be a cause of confusion; lack of teamwork, confidence and environmental care; and protection problems (Videras and Bordoni 2006), as well as low morale, which can also badly hurt a country's reputational status worldwide.”
    Quote in the paperNot a substantial claim0 of 1 sources checked
    • cites Videras and Bordoni 2006 source

  • May combine two claims.

    Premisecitation

    A diverse society can be a cause of confusion, lack of teamwork, confidence and environmental care, and protection problems.

    “A diverse society can also be a cause of confusion; lack of teamwork, confidence and environmental care; and protection problems (Videras and Bordoni 2006), as well as low morale, which can also badly hurt a country's reputational status worldwide.”
    Quote in the paperSubstantial claim0 of 1 sources checked
    • cites Videras and Bordoni 2006 source

  • Probably not a substantial claim: may not pass S3 (load-bearing).

    Study design and conductnone given

    White's robust standard errors correction has been applied in all the models.

    “In this regards, White's robust standard errors correction has applied in all the models.”
    Quote in the paperNot a substantial claim

  • Probably not a substantial claim: may not pass S3 (load-bearing).

    Study design and conductown data

    The study used the Hausman test for the selection of models, whether fixed effect or random effect.

    “The study used the Hausman test, for the selection of models, whether fixed effect or random effect.”
    Quote in the paperNot a substantial claim

  • Probably not a substantial claim: may not pass S3 (load-bearing).

    Study design and conductnone given

    For all models, this study performed post-estimation model tests in order to check whether any violation of assumptions, autocorrelations, or heteroscedasticity had occurred.

    “For all models, this study performed post-estimation model tests in order to check whether any violation of assumptions, autocorrelations, or heteroscedasticity had occurred.”
    Quote in the paperNot a substantial claim
30 of 30

  • The paper relies on this without support.

    Diversity is basically time-invariant, with very nominal change occurring over a long period.

    “Diversity is basically time-invariant data; within it, very nominal change occurs over a long period.”

  • The paper relies on this without support.

    The relationship between ethnic and religious diversity and financial development remains to be empirically addressed.

    “Therefore, the relationship between ED and RD and financial development is an issue that remains to be empirically addressed.”

  • The paper relies on this without support.

    There is uncertainty as to whether increasing ethnic and religious diversity fosters financial development or contributes to exclusion.

    “There is still uncertainty as to whether increasing ED and RD foster financial development or contribute to exclusion.”

  • The paper relies on this without support.

    System GMM is better suited for mitigating the endogeneity problem with a minimum standard error.

    “System GMM is better suited for mitigating the endogeneity problem with a minimum standard error.”

  • The paper relies on this without support.

    Increasing population size increases demand for banks, social infrastructure, goods and services, and natural resources, all of which are positively associated with financial development.

    “Increasing population size means increasing demand for banks, social infrastructure, goods and services, and natural resources, all of which are positively associated with the financial development of any country.”

  • The paper relies on this without support.

    An increase in terms of trade increases the rate of return on producing traded and nontraded commodities, which ultimately pushes the financial sector upward.

    “An increase in TOT means that the rate of return on producing the traded and nontraded commodities increases, which ultimately pushes the financial sector upward.”

  • The paper relies on this without support.

    Weak institutional frameworks often hinder the ability of financial intermediaries to efficiently allocate resources toward productive activities.

    “Weak institutional frameworks often hinder the ability of financial intermediaries to efficiently allocate resources toward productive activities.”

  • The paper relies on this without support.

    A country with a higher level of per capita income will have a more developed and organized financial sector.

    “The literature shows that a country with a higher level of per capita income will have a more developed and organized financial sector.”

  • The paper relies on this without support.

    Good institutions reduce the risk of conflicts and genocides that might arise from ethnic fractionalization.

    “Additionally, good institutions reduce the risk of conflicts and genocides that might arise from ethnic fractionalization.”

  • The paper relies on this without support.

    Fixed- or random-effects models cannot handle the effect of endogeneity.

    “One shortcoming of the fixedor randomeffects models is that they cannot handle the effect of endogeneity.”

  • The paper relies on this without support.

    Previous literature suggests that a family-based or group-oriented society may be negatively related to financial development.

    “While previous literature suggests that a”
11 of 11

Self-check

Percentages, sums and reported differences re-computed from the paper’s own numbers.

Each contradiction between two passages listed here was confirmed by an independent check.

  • Institutional effects are described as negative despite positive table entries

    Minor

    The discussion says the institutional effects in columns 6 and 12 are negative and insignificant. The displayed INST coefficients are positive in both columns, and column 6 is marked significant.

  • A deposits-to-GDP ratio is assigned a dollar unit

    Minor

    A ratio of deposits to GDP cannot have units of US dollars. The paper also describes its financial-depth measure as a percentage of GDP.

2 of 2

Cites

Flagged first, then by citations

Research works printed but not linked: 5

  1. Gujarati Damodar N., 2003, Basic Econometrics
  2. Hsiao Cheng, 1986, Analysis of Panel Data
  3. Katalakute Govind B., 2019, Diversified Leadership: A Boost to Innovation, Sumedha Journal of Management, 8, 203
  4. UNESCO, 2000, World Culture Report, 2000: Cultural Diversity, Conflict and Pluralism
  5. Wooldridge Jeffrey M., 2010, Econometric Analysis of Cross Section and Panel Data

Cited by

Sorted by citations

Related

Authors
Amin, S., & Murshed, S. M.
Affiliations
  • University of Oulu (FI)
  • International Institute of Social Studies (NL)
Corresponding author
Amin, Saqib
ORCID
Venue
The Developing Economies
Publisher
Wiley
Published
2025-02-27
Volume
63
Issue
3
Pages
262-284
ISSN
  • 0012-1533 (ISSN-L)
  • 1746-1049
DOI
10.1111/deve.12434
OpenAlex
W4408333203
Cited by
7
References
50
Citations by year
2026: 2 · 2025: 3 · 2024: 1 · 2023: 1
FWCI
11.05
Type
journal article
Language
en
Open access
Licence
onlinelibrary.wiley.com/termsAndConditions#vor (vor)
Locations
  • The Developing Economies (publishedVersion)
  • EUR Research Repository (Erasmus University Rotterdam) (publishedVersion, other-oa)
  • RePEc: Research Papers in Economics (submittedVersion)
  • EUR Research Repository (Erasmus University Rotterdam) (submittedVersion, other-oa)
  • RePub (Erasmus University Rotterdam) (submittedVersion, other-oa)
Topics
  • Social Sciences › Demography › Culture, Economy, and Development Studies
  • Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Monetary Policy and Economic Impact
  • Physical Sciences › Computer Science › Information Systems › Economic Growth and Development
Keywords
ethnic diversity, religious diversity, financial development, developing countries, institutional quality, governance, democracy, M2 money supply, private credit, economic growth

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