Within – Country diversity and economic output: The role of financial development

Augustine Tarkom, Patrick Glavee, Nana Twum Owusu-Peprah and Ned Kock

Structural Change and Economic Dynamics, 2024, vol. 71, issue C, 157-175

Abstract: This study investigates the relationship between within-country diversity, financial development, and economic output with a particular focus on the moderating role of financial development. Analyzing data from a diverse set of countries, we find that both religious and language diversity exhibit negative associations with economic performance. However, in emerging economies, a positive interaction between linguistic and religious diversity emerges. Notably, robust financial development positively moderates the relationship between diversity and economic output, with identified thresholds indicating a critical level necessary to mitigate the adverse consequences of cultural diversity. Our findings highlight the essential role of financial systems in fostering trust and promoting economic growth, particularly in high-diversity contexts. Our findings are robust to a battery of alternative tests. By emphasizing the importance of financial development in navigating within-country heterogeneities, this study offers valuable insights for policymakers seeking to foster inclusive and sustainable development strategies.

Keywords: Within-country diversity; Religious diversity; Linguistic diversity; Financial development; Economic output (search for similar items in EconPapers)
JEL-codes: G2 H1 O4 O5 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:71:y:2024:i:c:p:157-175

DOI: 10.1016/j.strueco.2024.07.004

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