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We provide new measures of ethnic, linguistic, and religious fractionalization for about 190 countries. These measures are more comprehensive than those previously used in the economics literature and we compare our new variables with those previously used. We also revisit the question of the effects of ethnic, linguistic, and religious heterogeneity on the quality of institutions and growth. We partly confirm and partly modify previous results. The patterns of cross-correlations between potential explanatory variables and their different degree of endogeneity makes it hard to make unqualified statements about competing explanations for economic growth and the quality of government. Our new data, which features the underlying group structure of ethnicities, religions and languages, also allows the computation of alternative measures of heterogeneity, and we turn to measures of polarization as an alternative to the commonly used index of fractionalization.
Keywords: ethnic heterogeneity, growth, government quality
JEL classification: O5, H1
(ProQuest Information and Learning: ... denotes formulae omitted.)
1. Introduction
Ethnic conflict is an important determinant of the political economy of many nations and localities. Many believe that it leads to political instability, poor quality of institutions, badly designed economic policy, and disappointing economic performance.
In a cross-country setting, Easterly and Levine (1997) have shown that per capita GDP growth is inversely related to ethnolinguistic fractionalization in a large sample of countries. In particular, they argued that much of Africa's growth failure is due to ethnic conflict, partly as a result of absurd borders left by former colonizers.1 As a result ofthat paper, a measure of ethnic fractionalization has become a "standard" control in regressions explaining cross-national differences in economic success.2
A related literature, early examples being Canning and Fay (1993) and Mauro (1995), has discussed the impact of ethnic fragmentation on government activities and quality of institutions. La Porta et al. (1999), in a broad empirical study of the determinants of the quality of government, suggest that ethnic fractionalization matters, even though variables related to legal origins may be more important. A large literature on US localities show that in more ethnically fragmented communities, public goods provision is less efficient, participation in social activities and trust is lower, and economic success, measured by growth of city size, is inferior/Evidence that trust does not travel well...