Us and Them : Economic Consequences of Ethno-confessional Diversity

Sammanfattning: An increasing number of countries are accepting individuals with diverse religious and ethnic backgrounds within their borders – a trend that can be traced to the end of WWII. Theoretically, a society can experience both economic benefits and costs from ethno-confessional diversity. As economies become more open and interconnected, it is vital to have an adequate answer to the question of how ethno-confessional heterogeneity impacts different dimensions of national economies. Through four empirical research papers, this thesis provides relevant insights into the nuanced interplay between ethno-confessional diversity and economic activity and performance. The results obtained indicate that the dynamic ethnic diversity has a negative impact on the economic growth on a country-level. However, this impact is probably indirect, meaning that ethnic diversity influences economic growth by affecting some other determinants of the economic performance. The thesis also finds that the increase in ethnic diversity is related to the increase in inequality before redistribution. Interestingly, when the dynamic measures of ethnic diversity are used, the results do not show statistically significant effect of ethnic heterogeneity on inequality after redistribution. Lastly, ethnic strife in both pre- and post-WWII Yugoslavia has impeded economic activity and performance. Preliminary evidence suggest that top-down policies and practices intended to prevent an ethnic conflict were unable to remove the negative impact of ethno-confessional diversity on trade and economic growth.