Corruption, Growth and Ethnic Fractionalization: A Theoretical Model

Abstract

This paper analyzes the existing relationship between ethnic fractionalization, corruption and the growth rate of a country. We provide a simple theoretical model. We show that a nonlinear relationship between fractionalization and corruption exists: corruption is high in homogeneous or very fragmented countries, but low where fractionalization is intermediate. In fact, when ethnic diversity is intermediate, constituencies act as a check and balance device to limit ethnically-based corruption. Consequently, the relationship between fractionalization and growth rate is also non-linear: growth is high in the middle range of ethnic diversity, low in homogeneous or very fragmented countries.

Fractionalization, Polarization, and Economic Growth: Identifying the Transmission Channels

“…For example, Ashraf and Galor (2011) find a hump-shaped relationship between their measure of genetic diversity (proxied by migratory distance to Eastern Africa) and current income per capita levels (that might suggest that moderate ethnic fragmentation can allow for an expansion of an economy's production possibilities frontier through diversity-driven knowledge accumulation). Cerqueti, Coppier, and Piga (2012) also find an empirical inverse-U relationship between growth and fractionalization (although for the very short run). They also discuss a theoretical model, where corruption can be high for homogenous and highly fragmented societies, but low for moderate levels of ethnic diversity (i.e., moderate fragmentation can play a positive role in controlling corruption by increasing the level of control across different ethnic groups).…”

General budget support as an aid instrument—impact on economic growth

“…10 The initial level of GDP per capita controls for the level of economic advancement while the assassination index is used to capture the effect of civil unrest on growth and an interactive term between assassinations. We also control for ethnic fractionalization to take the level of corruption into account as studies show that a high degree of ethnic fractionalization and corruption on the public sector are correlated with each other (Cerqueti, Coppier, & Piga, 2012;Easterly & Levine, 1997). The ethnic fractionalization variable used here is, however, time invariant and thus it enters regressions only in an interaction term with the assassination index.…”

How Do Groups Stabilize Corruption?

“…Although there are several approaches to explain the underlying mechanisms, for example, through in-group favouritism or joint bribe maximization (Shleifer and Vishny, 1993), there is no theoretical model-based explication of this piece of empirical evidence. In a theoretical model, Cerqueti et al (2012) investigated the relationship between social fractionalization, corruption and growth. They find that corruption levels should be high in very fractionalized as well as in very homogeneous, but low in intermediately fractionalized societies (the opposite of Dincer's findings).…”

“…3 We apply a simple repeated multi-stage game, which centres around the commitment problem of the partners of a corrupt transaction being solved by the application of unforgiving punishment strategies in repeated interactions (Pechlivanos, 1997). In this respect, our approach in this paper differs substantially from the approach chosen by Cerqueti et al (2012), which sets aside the commitment problem of briber and bribee. Within the New Institutional Economics of Corruption (Lambsdorff,1 Most empirical studies work with indices, for example, the Corruption Perception Index (CPI), published by Transparency International.…”

“…2 Considering a cross-national comparison, the assumption of similarity is violated so that a transfer of argumentation into this setting would be invalid. 3 In a crude way, the structure of society can be mapped into the one-dimensional index of (ELF APPENDIX A and Alesina et al, 2003). 2007), the stability of a corrupt transaction through repeated interaction determines its level, as only a minority of corrupt deals are finalized in an immediate exchange of money and services (as implicitly assumed by Cerqueti et al, 2012). Therefore, the focus of our model is on the interaction between the effects due to the existence and shape of sub-networks on the internalization of the negative external effect and the stabilization of illegal corrupt transactions.…”