Objective
This research project aims: (a) to gain a comprehensive understanding of the causal sequence between ethnic diversity and economic instability; and (b) to identify economic regimes and policies that would in effect diminish the impact of ethnically diverse communities as an underlying cause of the economic instability in Africa, partly because ethnicity is itself so unstable a category. It asks how strongly ethnic identities drive political and/or economic behavior, and whether ethnic groupings or their strength are exogenous to economic regimes and development. It then raises the question whether, in an economy with ethnically diverse communities, the market mechanism likely leads to an equilibrium in which welfare levels of such communities lead to uneven (horizontal) inequality, and, hence, economic instability; if government intervention tends to accentuate inequality and instability; and what combination of market and government more likely leads to economic stability.
In 2009 RIEB, in cooperation with the Graduate School of International Cooperation Studies, Kobe University, launched this joint research project with JICA Research Institute. The research will be undertaken by a consortium of economists, political scientists, economic historians, and anthropologists, from the United States, Europe, Africa, India and Japan.
Background
In this research, we focus on the causal sequence between ethnic diversity and economic instability as seen in the form of large fluctuations in the level of economic activity, a sudden and large drop in such activity, and/or a collapse of economic regime. While economic instability can not be isolated from political instability or a sustained period of low economic growth, this research concentrates largely on the economic instabilities, and is thus differentiated from much of the previous research.
Over the last two decades, most developing countries introduced market-based economic reforms, and integrated more closely into the global economy. During the period, economic growth accelerated substantially, inflation declined, and the balance of payments strengthened in most developing countries. At the same time, however, income disparities widened, and poverty appears to have worsened, in particular in Sub-Saharan Africa. Social frictions associated with greater inequality, as well as pervasive unemployment and increasingly scarce land and water, have made the economies of many African countries less stable and more vulnerable to political or other shocks that may have triggered ethnic clashes and other conflicts in those economies.
Recent research has shown that in an economy where preferences of its agents are diverse, market mechanism could likely lead to an equilibrium in which welfare levels of agents are remarkably uneven. It is also known that the existence of equilibrium is assured in a market economy, only if the preferences of its agents are sufficiently similar or are evenly distributed. It may be reasonable to assume that this condition holds in some countries, but this may not be the case in others, including many in Africa.
However, can it be shown empirically that the observed instability of the African economies can be attributed to the co-existence of ethnically distinct communities? Perhaps other equally important factors were at play. There has been considerable research on ethnic diversity as a factor affecting economic development. Economists have observed that ethnic and linguistic diversity appears to lower rates of economic growth. They have constructed indices to measure the extent and depth of such diversity in a given country and have undertaken a large volume of regression analyses to determine the significance of such relationships. Ethnic diversity has also received considerable attention in analyzing political instability and, in particular, conflicts.