The effect of ethnic fractionalization on economic development. A multilevel analysis

Abstract

This paper focuses on the relationship between ethnic diversity and economic development. While the former is measured using the well-known Ethnic Fractionalization Index, the latter is measured using the Subnational Human Development Index. Ethnic diversity as an explanatory variable in economic development research is a rather recent phenomenon. The existing literature is limited and has been rather inconclusive about the issue. Popular opinion in the field points towards a negative relationship between ethnic diversity and economic development. However, there also exists evidence of a positive relationship or a mutual dependency. Using a multilevel approach, the results of this paper conclude a negative relationship between the two variables; with a high degree of ethnic fractionalization on the national level being associated with a low degree of development on the subnational level.