Corruption, Growth and Ethnic Fractionalization: A Theoretical Model
34 Pages Posted: 8 Nov 2011
Date Written: November 8, 2011
This paper analyzes the existing relationship between ethnic fractionalization, corruption and the growth rate of a country. We provide a simple theoretical model. We show that a nonlinear relationship between fractionalization and corruption exists: corruption is high in homogeneous or very fragmented countries, but low where fractionalization is intermediate. In fact, when ethnic diversity is intermediate, constituencies act as a check and balance device to limit ethnically-based corruption. Consequently, the relationship between fractionalization and growth rate is also non-linear: growth is high in the middle range of ethnic diversity, low in homogeneous or very fragmented countries.
Keywords: corruption, ethnic fractionalization, monitoring cost, economic growth
JEL Classification: D73, K42, O43
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