Ethnic Diversity, Social Norms and Elite Capture: Theory and Evidence from Indonesia

60 Pages Posted: 4 May 2020 Last revised: 1 Dec 2021

See all articles by Anirban Mitra

Anirban Mitra

University of Kent

Sarmistha Pal

University of Surrey; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 29, 2021

Abstract

Elite capture is a natural concern regarding decentralisation. We highlight the effects of ethnic diversity and social norms on the extent of such capture. Ethnic diversity, through differences in the preference for public goods, facilitates capture. However, this may be counteracted by social norms which promote cooperative behaviour within communities. We test these theoretical predictions using community-level data from the 1997 and 2007 Indonesian Family Life Survey (IFLS) rounds with fiscal decentralisation being implemented in between. We exploit a particular institutional feature of Indonesian communities | namely, the observance of traditional "Adat" laws to proxy coordination across ethnic groups. Overall, we find that ethnic diversity depresses community-level development spending after decentralisation, particularly where "Adat" laws (which promote an ethic of mutual co-operation) are not followed. The opposite is observed for spending on non-developmental items.

Keywords: Decentralisation, Lobbying, Local development, Political Economy

JEL Classification: D72, D74, H40

Suggested Citation

Mitra, Anirban and Pal, Sarmistha, Ethnic Diversity, Social Norms and Elite Capture: Theory and Evidence from Indonesia (November 29, 2021). Available at SSRN: https://ssrn.com/abstract=3570956 or http://dx.doi.org/10.2139/ssrn.3570956

Anirban Mitra (Contact Author)

University of Kent ( email )

CT2 7NP
United Kingdom

Sarmistha Pal

University of Surrey ( email )

Stag Hill
Guildford, England GU2 7XH
United Kingdom
01483 683995 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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