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Holding on? Ethnic divisions, political institutions and the duration of economic declines

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  • Bluhm, Richard
  • Thomsson, Kaj

Abstract

We analyze the duration of large economic declines and provide a theory of delayed recovery. We show theoretically that uncertain post-recovery incomes lead to a commitment problem which limits the possibility of cooperation in ethnically heterogeneous countries. Strong constraints on the executive solve this problem by reducing the uncertainty associated with cooperative behavior. We test the model using standard data on linguistic heterogeneity and detailed data on ethnic power configurations. Our findings support the central theoretical prediction: countries with more constrained political executives experience shorter economic declines. The effect is large in ethnically heterogeneous countries but virtually non-existent in homogeneous societies. Our main results are robust to a variety of perturbations regarding the estimation method, the estimation sample, measures of heterogeneity, and measures of institutions.

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  • Bluhm, Richard & Thomsson, Kaj, 2020. "Holding on? Ethnic divisions, political institutions and the duration of economic declines," Journal of Development Economics, Elsevier, vol. 144(C).
    • Handle: RePEc:eee:deveco:v:144:y:2020:i:c:s0304387820300328
    DOI: 10.1016/j.jdeveco.2020.102457
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    3. Ahlerup, Pelle & Olsson, Ola, 2023. "Sustainable Economic Growth: A Critical Assessment of SDG 8.1," Working Papers in Economics 834, University of Gothenburg, Department of Economics.
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    More about this item

    Keywords

    Economic crises; Delayed recovery; Political economy; Ethnic diversity;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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