Ethnic divisions, political institutions and the duration of declines

Richard Bluhm and Kaj Thomsson

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: This paper analyzes the duration of large economic declines and provides a theory of delayed recovery. First, we develop a formal political economy model that illustrates a simple mechanism of how weak constraints on the political executive can lead to longer declines in ethnically heterogeneous countries. The model shows how uncertain post-recovery incomes and a `winner-take-all' threshold effect create a commitment problem rendering a cooperative equilibrium inaccessible. Holding out can benefit groups by reducing the threshold effects in subsequent periods, thus limiting the remaining uncertainty. Placing strong constraints on the executive solves this commitment problem by reducing the uncertainty from the threshold effects, which brings about cooperation earlier on. Second, we then test several empirical predictions from the model using standard data on linguistic heterogeneity and more detailed data on ethnic power configurations. We find that the partial correlations are consistent with the proposed theory. The effect of executive constraints on the length of declines is very large in heterogeneous countries, but practically disappears in ethnically homogeneous societies. The adverse effect of heterogeneity is driven by the number of groups; increasing political concentration works in the opposite direction.

JEL-codes: E60 J15 O43 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/112863/1/VfS_2015_pid_100.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:112863

Access Statistics for this paper

More papers in VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().