Can Institutions Resolve Ethnic Conflict?

31 Pages Posted: 2 Jan 2001

See all articles by William Easterly

William Easterly

New York University - Department of Economics

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High-quality institutions-reflected in such factors as rule of law, bureaucratic quality, freedom from government expropriation, and freedom from government repudiation of contracts-mitigate the adverse economic effects of ethnic fractionalization identified by Easterly and Levine (1997) and others.

Ethnic diversity has a more adverse effect on economic policy and growth when a government's institutions are poor. But poor institutions have an even more adverse effect on growth and policy when ethnic diversity is high. In countries where the institutions are good enough, however, ethnic diversity does not lessen growth or worsen economic policies.

Good institutions also reduce the risk of wars and genocides that might otherwise result from ethnic fractionalization. However, these forms of violence are not the channel through which ethnic fragmentation and its interaction with institutions affect economic growth.

Ethnically diverse nations that want to endure in peace and prosperity must build good institutions.

Keywords: Growth, Economic Development, Political Economy, Institutions, Economic Policy, Ethnic Conflict, Genocide

JEL Classification: O1, O4, H0, Z13

Suggested Citation

Easterly, William, Can Institutions Resolve Ethnic Conflict?. Economic Development and Cultural Change. Available at SSRN: or

William Easterly (Contact Author)

New York University - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

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