Reforms and ethnic diversity’s
impact on economic growth
Monica Vlaicu
Laura Ionescu
Background
• Liberalizations/ Reforms taken in isolation:
1) No robust effect of becoming a democracy on
economic growth (Przeworski &Liamongi
2000,); (Giavazzi & Tabellini, 2005); (Barro,
1996);
2) Economic liberalizations speed up growth by
about 1% (Giavazzi & Tabellini, 2005);
(Wacziarg and Welch, 2003);
Giavazzi and Tabellini (2005)
• The sequence of reforms is important to economic outcomes
• The Model: yit = ai +bt + y*xit + δ*reformit + eit
yit → real GDP per capita growth
a & b → country and year fixed effects, respectively
xit → vector of other control variables (year fixed effects,
continent, socialist legal origin …)
reformit → 1, years after reform
0, otherwise (before reform/ control countries)
e → unobserved error term
δ → measures the effect of the reform on the variable Y
Alesina and La Ferrara (2004)
• Ethnic diversity has an impact on economic
performances
• Two measures of ethnic diversity: polarization
and fractionalization
• Both are found to have a negative impact on
growth, stronger in the case of polarization
Our approach
• Drawing on the findings of these papers we test the hypothesis that
not only is the sequence of liberalizations important(economicpolitical or vice versa), but the ethnic component affects the
outcomes of reforms and thus impacts growth.
• We expect to find that
a) Democratization + ethnic polarization → increase instability →
negative impact on growth
b) Liberalization + ethnic polarization → reduce instability → positive/
smaller negative impact on growth
DATA:
• Polity IV database → Polity2 indicator
• Penn World table 6.3 → GDP per capita growth
• Wacziarg and Welch (2008) → liberalization data
We updated the data used by Giavazzi&Tabellini up to 2007 for
democratization and economic performance and 2001 for
liberalization
Sample of X countries
22: democratization + liberalization
15: liberalization + democratization