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Fractionalization and its Effect on Social Cohesion: "It's the Social Exclusion, Stupid!

This study examines the impact of fractionalization on social cohesion and economic development. It argues that social exclusion, rather than diversity itself, is the key driver of negative effects. The study uses data from the Indices of Social Development to test its hypothesis and finds significant results.

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Fractionalization and its Effect on Social Cohesion: "It's the Social Exclusion, Stupid!

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  1. Fractionalization and its Effect on Social Cohesion: "It's the Social Exclusion, Stupid!" Irene van Staveren, Institute of Social Studies Zahid Pervaiz, Lahore School of Management ECINEQ conference 13-15 July 2015, University of Luxembourgh

  2. “Missing links” in development literature • Socialcapital • Institutions Convergingempiricallyaround trust andinformalinstitutions: => socialcohesionchannel

  3. Social constraint on growth • Ethnicfractionalisation • Ethnicpolarization Negative effect of ethnicdiversity on growth?

  4. Theoretical puzzle • In economics there is a strong case in favour of diversity • Controlling for income inequality (Gini) does not change the negative and statistically significant effect of ethnic diversity on growth • So, how can we explain the empirical result? • We suggest that it’s not diversity but social exclusion, which drives the negative effect

  5. Testing for social exclusion: • Incomeinequality = verticalinequality • Socialexclusion = horizontalinequality Ethnicdiversity is anexpression of horizontalinequality => controlling forincomeinequality is inadequate

  6. Literature • Easterly & Levine (1997) on Africa: “… interest group polarization leads to rent-seeking behaviour and reduces the consensus for public goods, creating long-run growth tragedies.” • Sokoloff & Engerman (2000): historical polarization driven by elites explain growth differences in the Americas =>Problem: both confuse diversity with polarization • Alesina & La Ferrara (2005) recognize that diversity can run along a variety of dimensions => “open questions” • Casey & Owen (2014) recognize that elite capture must be measured rather than income and wealth inequality

  7. New ideas emerging • Fedderke, Luiz & de Kadt (2008): ethnic identity is weaker over time • Shcherbak (2012): what matters is a society’s tolerance of diversity • Community-level studies on developed countries: it’s not diversity as such, but socioeconomic deprivation of particular social groups, which results in negative effects on community social cohesion.

  8. Our hypothesis It is not the number or size difference of ethnic groups which matter, but rather the way ethnic groups are socially positioned and its members relate to members of other groups, which affects social cohesion, and thereby economic development processes and growth.

  9. Methodology & data • Dependent variable: Intergroup Cohesion from Indices of Social Development, ISS • Independent variable 1: Ethnic fractionalisation (and linguistic and religious fractionalization) as in the literature • Independent variable 2: Inclusion of Minorities from Indices of Social Development, ISS • Control variable: log GDP per capita

  10. ISD Database at ISS: • www.IndSocDev.org freely online available • Data from 1990 until 2010 in 5-year periods • Almost every country in the world • Continuously updated • Transparent: • Which indicators go into which index • 6 indices and 200 indicators are downloadable • Standard errors provided per country and variable

  11. 6 indices: • Civic Activism, measuring use of media and protest behaviour • Clubs and Associations, defined as membership in local voluntary associations • Intergroup Cohesion, which measures ethnic and sectarian tensions, and discrimination • Interpersonal Safety and Trust, focusing on perceptions and incidences of crime and personal transgressions • Gender Equality, reflecting gender discrimination in home, work and public life. • Inclusion of Minorities, measures levels of discrimination against vulnerable groups such as indigenous peoples, migrants, refugees, or lower caste groups.

  12. Methodology ISD • ISD combines over 200 indicators from 25 independent and reputable sources • Uses ‘matching percentiles’ method used for Corruptions Perceptions Index Lambsdorff 1999 www.transparency.org/policy_research/surveys_indices/cpi/2010/in_detail#4 • Rationale for matching percentiles • Combination of sources measuring same phenomenon more reliable than each source separately • Indices broaden the coverage compared to single source • Minimum 3 independent sources to develop index

  13. Estimation methods for social cohesion • Cross-section all developing countries 2010 • Panel all developing countries 1990-2010 (5 years) with random effects (Hausman test did not favour fixed effects) • Endogeneity is not likely because social cohesion changes only very slowly over time. • Fractionalization data is available for one year only • Robustness checks with two alternative fractionalization variables

  14. Table 1a. Summary statistics cross-section 2010

  15. Table 1b. Summary statistics panel 1990-2010

  16. Table 2. Results of cross-section estimation; dependent variable Intergroup Cohesion ** significant at 5% level; *** significant at 1% level

  17. Table 3. Results of panel estimation; dependent variable Intergroup Cohesion * significant at 10% level; ** significant at 5% level; *** significant at 1% level

  18. Discussion • The difference between the cross-section results and panel results are small: mainly the size effect of social exclusion is larger in the cross-section • Large difference in R square between cross section and panel • Ethnic and linguistic fractionalization have very small negative effects and not statistically significant • Inclusion of minorities has a large, positive and statistically significant effect on social cohesion (larger than a stdev) • 10% higher GDP per capita has a much smaller impact on social cohesion than a 10% point increase (for example from 0.30 to 0.40) along the scale of inclusion of minorities

  19. Conclusion • Horizontal inequality generates not merely differences in economic benefits but expresses social exclusion from large parts of the economy • But the analysis needs to be expanded with more controls and perhaps a time-lag • Next steps: • develop a model in which also income inequality is included • develop a growth model with ethnic diversity, social exclusion, and income inequality

  20. Indices of Social Development databasewww.IndSocDev.orgtwitter: @indsocdev ISD team: Irene van Staveren Ekaterina Evdokimova and external advisors

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