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Within – Country diversity and economic output: The role of financial development

Author

Listed:
  • Tarkom, Augustine
  • Glavee, Patrick
  • Owusu-Peprah, Nana Twum
  • Kock, Ned

Abstract

This study investigates the relationship between within-country diversity, financial development, and economic output with a particular focus on the moderating role of financial development. Analyzing data from a diverse set of countries, we find that both religious and language diversity exhibit negative associations with economic performance. However, in emerging economies, a positive interaction between linguistic and religious diversity emerges. Notably, robust financial development positively moderates the relationship between diversity and economic output, with identified thresholds indicating a critical level necessary to mitigate the adverse consequences of cultural diversity. Our findings highlight the essential role of financial systems in fostering trust and promoting economic growth, particularly in high-diversity contexts. Our findings are robust to a battery of alternative tests. By emphasizing the importance of financial development in navigating within-country heterogeneities, this study offers valuable insights for policymakers seeking to foster inclusive and sustainable development strategies.

Suggested Citation

  • Tarkom, Augustine & Glavee, Patrick & Owusu-Peprah, Nana Twum & Kock, Ned, 2024. "Within – Country diversity and economic output: The role of financial development," Structural Change and Economic Dynamics, Elsevier, vol. 71(C), pages 157-175.
  • Handle: RePEc:eee:streco:v:71:y:2024:i:c:p:157-175
    DOI: 10.1016/j.strueco.2024.07.004
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    More about this item

    Keywords

    Within-country diversity; Religious diversity; Linguistic diversity; Financial development; Economic output;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • H1 - Public Economics - - Structure and Scope of Government
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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