Discussion Paper

No. 2017-57 | August 23, 2017
Ethnic diversity and economic performance – an empirical investigation using survey data

Abstract

This empirical study is based on nationally representative cross-sectional survey data gathered to investigate the effect of ethnic diversity on individual and household economic performance in Bosnia and Herzegovina (BiH). The complexity of this relationship in the context of this post-conflict country is addressed and investigated by estimating models in which ethnic diversity affects personal and family incomes. The 1992–1995 conflict was ethnically characterized, and harmful for ethnic diversity. Yet, two decades later, we find positive economic consequences of ethnic diversity for individuals and households. After controlling for other influences, the authors estimate that both personal and family incomes are around 10% higher in ethnically diverse than in ethnically homogenous areas. A corollary is that policy makers in this post-conflict country, and in similar environments elsewhere, should take into consideration the economic costs of policies supporting ethnic homogeneity over diversity.

JEL Classification:

D00, D10, D31

Assessment

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Links

Cite As

Adnan Efendic and Geoff Pugh (2017). Ethnic diversity and economic performance – an empirical investigation using survey data. Economics Discussion Papers, No 2017-57, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2017-57


Comments and Questions


Anonymous - Recommendation
August 30, 2017 - 12:52

This paper focuses on the personal distribution of income. To acquire a macroeconomic flavor too, it should devote a paragraph or two on the role of religious identity in the conflict in BiH. National identity there was identified with religious identity, and national homogeneity implies thereby religious homogeneity, which according ...[more]

... to the sites mentioned below, may be fostering growth...

References
http://www.nber.org/papers/w9682.pdf
https://econ.berkeley.edu/sites/default/files/eum_wonsub.pdf
http://digitalcommons.csbsju.edu/cgi/viewcontent.cgi?article=1088&context=honors_theses


Anonymous - Response
September 07, 2017 - 09:17

Dear colleague,
thank you for this useful comment. We fully agree with your suggestion. We will integrate this discussion and references during the revision process when we get referee reports.
Adnan Efendic


Anonymous - Invited Reader Comment
September 21, 2017 - 12:02

Review Report: Ethnic diversity and economic performance – an empirical investigation using survey data

The authors present a highly interesting research paper, by investigating the effect of ethnic diversity on economic performance of individuals and households,referring to a unique country, B&H, with specific historical, social, and in particular,ethnic and ...[more]

... religious structure of the society. Authors provide empirical evidence that grater ethnic diversity is associated with higher household and individual incomes. While the findings are convincing, methodology well elaborated and linked to the microeconomic theory, the reported causality will benefit from more discussion of a few ideas below.

Authors mention that after the conflict, there was a high number of returning migrants – often returning migrants are engine of change, coming back with capital and know-how, enabling better economic prospective for themselves and the community. It would be interesting to know if such a factor can affect the obtained results. Communities with higher number of returning migrants may have higher ethnic diversity. While I understand that these data might not be available at the micro level, at least some discussion and supporting arguments will be beneficial for the paper.

Authors refer to the positive strand of the literature is Collier et al. (2001) who categorize ethnic diversity into ‘dominance’ and ‘fractionalisation’, who find that ethnically diverse societies characterized by ethnic dominance are likely to have worse economic performance, while in diverse societies characterized by ethnic fractionalization this is not necessarily the case, especially in democratic societies. In other words, ethnic diversity is damaging if it takes the form of dominance over fractionalization. In this context, could be of interest to incorporate this aspect in the discussions of the empirical results to the extent possible.

Regarding conflict intensity and ethnic cleansing, it may be rationale to expect that those regions/provinces with higher level of education (of citizens) and higher income, could have been less exposed to ethnic cleansing, and thereby also less damaged by the conflict. So maybe inherited levels of education and income from the past, may have influenced conflict dynamics, which in turn could have influenced ethnic diversity persistence (or not) – while income may be higher in such communities simply because of the inherited conditions.

Another factor that deserves to be mentioned in the paper is the international financial support – such support could have been higher in ethnically diverse regions, contributing to higher income. In the same context, major urban areas which host international institutions and corporates are more likely to be characterized by ethnic diversity – but also with higher income also because of the presence of such institutions. Whether this is the case in the BiH context deserves some discussion.

To conclude, authors should enrich the reported results of the established positive relation between ethnic diversity and economic performance taking into account the above mentioned issues. I recommend this paper for publication subject to addressing the comments.


Adnan Efendic - Response
September 30, 2017 - 11:49

Dear colleague

thank you for useful comments. All of them will be taken into account during the revision process.

Adnan Efendic


Anonymous - Ethnic diversity and economic performance
September 29, 2017 - 07:13

This is an important and timely paper linking economic performance to ethnic diversity. The authors empirically demonstrate that what is commonly referred as ‘market’ – where the rules are maintained by mere supply and demand – is a much more complex social space, especially in culturally diverse societies. The authors ...[more]

... argue that cultural diversity plays an important role in individual and household income in post-war Bosnia, where ethnic diversity was seriously eroded during the 1992-95 conflict. To illuminate the importance of their findings, the authors present a succinct background of country’s ethno-religious diversity and how it was changed during the 1990s war as well as how it has been revived, at least in some parts of the country, over the last two decades. This background is essential for understanding this particular context and the novelty of the findings described in the paper.

I would at least partially disagree with the previous reviewer’s comment posted on 21 September stating: “Regarding conflict intensity and ethnic cleansing, it may be rationale to expect that those regions/provinces with higher level of education (of citizens) and higher income, could have been less exposed to ethnic cleansing, and thereby also less damaged by the conflict. So maybe inherited levels of education and income from the past, may have influenced conflict dynamics, which in turn could have influenced ethnic diversity persistence (or not) – while income may be higher in such communities simply because of the inherited conditions.”

As described in several seminal works on the war in Bosnia (cf. Cigar 1995, Hoare 2003, Gutman 1993, Vulliamy 1994, Maass 1996) and confirmed by the ICTY, ‘ethnic cleansing’ as a policy and practice was not some spontaneous eruption of ‘ancient hatred’ among and between the different ethno-national and religious groups in Bosnia. It was rather a well-planned strategy executed by Slobodan Milosevic’s regime and its war machine in Bosnia (as well as in parts of Croatia and Kosovo). As the authors listed above have described, and several ICTY rulings confirmed, educated elites were both the promoters of ethnic cleansing (e.g. the Serb intellectuals Prof Biljana Plavsic, Prof Nikola Koljevic, Dr Radovan Karadzic) and its first victims (e.g. killing of Bosniak and Croat intelligentsia in Prijedor and other ‘ethnically cleansed’ cities – cf. Vulliamy, Maass and Gutman). Thus, I would not apriority attribute ethnic diversity to those with better education and I don’t think the authors suggest this in their paper.

References:

Cigar, N. 1995, Genocide in Bosnia: The Policy of ‘Ethnic Cleansing’ in Eastern Europe, Texas A&M University Press, College Station.

Gutman, R. 1993, Witness to Genocide, Macmillan, New York.

Hoare, M.A. 2003, ‘Genocide in the former Yugoslavia: a critique of left revisionism's denial’, Journal of Genocide Research, Routledge, Volume 5, Number 4, December 2003, pp. 543 – 563.

International Criminal Tribunal for the former Yugoslavia (ICTY) http://www.icty.org/en/action/cases/4

Maass, P. 1996, Love thy neighbor: a story of war, Random House, New York.

Vulliamy, E. 1994, Seasons in Hell: Understanding Bosnia's War, Simon and Schuster, New York and London.


Adnan Efendic - Response
September 30, 2017 - 11:50

Dear colleague,

thank you for your comments, discussion and references that might be useful in the revision process.

Adnan Efendic