Ethnic Segregation and Public Goods: Evidence from Indonesia

Abstract

This article contributes to the study of ethnic diversity and public goods provision by assessing the role of the spatial distribution of ethnic groups. Through a new theory that we call spatial interdependence, we argue that the segregation of ethnic groups can reduce or even neutralize the “diversity penalty” in public goods provision beyond what can be explained by ethnic fractionalization alone. This is because local segregation allows communities to use disparities in the level of public goods in other communities in the same administrative area as leverage when advocating for more public goods for themselves. We test this prediction on highly disaggregated data from Indonesia and find strong support that, controlling for ethnic fractionalization, segregated communities have higher levels of public goods. This has an important and underexplored implication: decentralization disadvantages integrated communities vis-a-vis their more segregated counterparts. Redistributive intervention from the center can counter this source of inequality.

Keywords: Ethnicity, Segregation, Public Goods, Indonesia

JEL Classification: O53, R53