10.1016/j.worlddev.2020.104925 ">

The path from ethnic inequality to development: The intermediary role of institutional quality

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World Development


© 2020 Elsevier Ltd. The influence of ethnic and income disparities in terms of their impacts on nations’ economic development have long intrigued researchers. On the empirical side, recent developments in creating a composite measure of income inequality based on ethnic diversity have shown a negative impact of ethnic inequality on economic development. This approach, while insightful, ignores the crucial role of governmental institutions. To account for this, we introduce the intermediary role of an important dimension of institutional quality (proxied by corruption) and test, employing mediation analysis, whether it is a significant mediator in the effect of ethnic inequality on economic development. Using a cross-section of data on a large sample of nations, results show a significant negative impact of ethnic inequality on development that is indeed channeled through corruption. Specifically, findings suggest that about two-thirds of ethnic inequality's influence on economic development flows through corruption whereas, only one-third of the total influence is directly ascribed to ethnic inequality. Thus, policy efforts to control ethnic and income disparities that do not take account of the influence of corruption are unlikely to attain development goals.

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