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Why Are Ethnically Divided Countries Poor?

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Abstract

Ethnic divisions are associated with poor economic performance. This paper develops a model of ethnic conflict and finds that it is a significant source of poverty. Ethnic divisions lead the government to make ethnic transfers, which distort investment decisions, and lead to civil war because groups fight for control of the government. The simulated model generates the income gap between countries with and without ethnic divisions. Redistribution is the most important source of poverty. War costs cause less than a quarter of the reduction in income and divided countries are poorer even if they do not fight a war.
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  • Benjamin Bridgman, 2003. "Why Are Ethnically Divided Countries Poor?," Departmental Working Papers 2003-011, Department of Economics, Louisiana State University.
    • Handle: RePEc:lsu:lsuwpp:2003-011
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    1. John Smith, 2012. "Reputation, Social Identity and Social Conflict," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(4), pages 677-709, August.
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