Minority Status and Investment: Evidence from Natural and Lab Experiments in Bosnia and Herzegovina

Abstract

This study explores how minority status influences individual decisions about investment in a post-conflict society. The study is based on multiple sources of evidence from Bosnia and Herzegovina. First, we exploit an exogenous imposition of minority and majority positions by an as-if random adjustment of an administrative boundary and analyze household and business surveys. Second, we run a “lab-in-the field” experiment. The analysis shows that both actual and experimentally induced minority statuses are associated with lower levels of investment. Evidence suggests the perception of discrimination by the government, and not actual discrimination, as the plausible cause of such behavior. Several implications follow: emergence and persistence of segregated ethnic businesses, underinvestment and a basis for horizontal inter-group inequality that could increase the probability of a conflict.