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

Richard Bluhm, Kaj Thomsson

Research output: Contribution to journalArticleAcademicpeer-review

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.

Original languageEnglish
Article number102457
Number of pages17
JournalJournal of Development Economics
Volume144
DOIs
Publication statusPublished - May 2020

JEL classifications

  • e61 - "Policy Objectives; Policy Designs and Consistency; Policy Coordination"
  • o11 - Macroeconomic Analyses of Economic Development
  • o43 - Institutions and Growth
  • j15 - "Economics of Minorities, Races, and Immigrants; Non-labor Discrimination"
  • h12 - Crisis Management

Keywords

  • delayed recovery
  • economic crises
  • ethnic diversity
  • political economy
  • CONFLICT
  • Economic crises
  • Ethnic diversity
  • PERFORMANCE
  • Delayed recovery
  • Political economy
  • AFRICA
  • POLICY
  • VETO PLAYERS
  • DYNAMICS
  • DIVERSITY

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