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Reforms and ethnic diversity’s i mpact on economic growth

Reforms and ethnic diversity’s i mpact on economic growth. Monica Vlaicu Laura Ionescu. Background. Liberalizations/ Reforms taken in isolation: No robust effect of becoming a democracy on economic growth ( Przeworski & Liamongi 2000,); ( Giavazzi & Tabellini , 2005); ( Barro , 1996);

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Reforms and ethnic diversity’s i mpact on economic growth

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  1. Reforms and ethnic diversity’s impact on economic growth Monica Vlaicu Laura Ionescu

  2. Background • Liberalizations/ Reforms taken in isolation: • No robust effect of becoming a democracy on economic growth (Przeworski &Liamongi 2000,); (Giavazzi & Tabellini, 2005); (Barro, 1996); • Economic liberalizations speed up growth by about 1% (Giavazzi & Tabellini, 2005); (Wacziarg and Welch, 2003);

  3. Giavazzi and Tabellini (2005) • The sequence of reforms is important to economic outcomes • The Model: yit =ai+bt+ y*xit+δ*reformit+eit yit→ real GDP per capita growth a &b →country and year fixed effects, respectively xit→ vector of other control variables (year fixed effects, continent, socialist legal origin …) reformit→ 1, years after reform 0, otherwise (before reform/ control countries) e →unobserved error term δ → measures the effect of the reform on the variable Y

  4. Alesina and La Ferrara (2004) • Ethnicdiversity has an impactoneconomicperformances • Two measuresofethnicdiversity: polarization and fractionalization • Botharefound to have a negative impactongrowth, stronger in the case ofpolarization

  5. Ourapproach • Drawing on the findings of these papers we test the hypothesis that not only is the sequence of liberalizations important(economic-political or vice versa), but the ethnic component affects the outcomes of reforms and thus impacts growth. • Weexpect to findthat a) Democratization + ethnicpolarization → increaseinstability → negative impactongrowth b) Liberalization + ethnicpolarization → reduceinstability → positive/ smaller negative impactongrowth

  6. DATA: • Polity IV database → Polity2 indicator • Penn World table 6.3 → GDP per capitagrowth • Wacziarg and Welch (2008) → liberalization data Weupdatedthe data used by Giavazzi&Tabellini up to 2007 for democratization and economicperformance and 2001 for liberalization Sampleof X countries 22: democratization + liberalization 15: liberalization + democratization

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