The domestic foundations of economic
resilience:
Size, ethnic diversity and the politics of
economic adjustment
Tony Heron and Julia Smith
University of York
UK
1/7/2014
Prepared by: Tony Heron and Julia Smith, University of York
Why do ostensibly similar countries often have quite
different experiences adjusting to external shocks?
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Context - increasing global volatility associated with long-term structural change e.g. global food crisis
Link between ethnic-linguistic diversity and economic performance
Importance of size – perception of vulnerability engenders social cohesion
Question of resilience - not just economic growth but deeper politics of economic
adjustment
1/7/2014
Prepared by: Tony Heron and Julia Smith, University of York
Ethnic diversity and economic performance
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Easterly and Levine (1997) found a robust correlation between ethnic diversity and
weak economic growth associated with, among other things, low schooling rates,
underdeveloped financial systems, distorted foreign exchange markets and poor
infrastructure
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Mauro (1995) identifies a negative correlation between this and institutional efficiency
and corruption, contributing to a poor investment climate and thus weak economic
growth
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Rodrik (1997) attributes the difficulties ethnically divided societies have in absorbing
external economic shocks to social conflict and the inability to agree upon appropriate
policy responses
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La Porta et al (1999) relate ethnic fractionalisation to the quality of governance
1/7/2014
Prepared by: Tony Heron and Julia Smith, University of York
Ethnic diversity and economic performance
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Posner (2004: 853)-only certain ethnic identities are politically mobilised, and thus in a
position to effect policy outcomes.
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Dahl 1971; Horowitz 1985; it is the middle range of heterogeneity that poses the
biggest risk to social stability; by contrast, highly heterogeneous societies are more
likely to be characterised by crossing-cutting cleavages, which provide incentives for
coalition building among different ethnic groups
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Horowitz 1985; Posner 2005- the probability of social conflict in heterogeneous
societies is influenced by other political variables, including the relative size of
different ethnic groups, the degree of territorial segmentation and the distribution of
power between groups
1/7/2014
Prepared by: Tony Heron and Julia Smith, University of York
Size and economic performance
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Katzenstein (1985) -the tendency of small states to marry successfully participation in
world markets with corporatist social partnership and solidaristic welfare regimes
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Easterly and Kraay (2000) - even when controlling for a range of factors, small states
have generally higher income and productivity levels than larger states. Why? A higher
degree of social cohesion, small agricultural sectors, higher levels of foreign aid per
head and much higher ratios of trade to GDP
1/7/2014
Prepared by: Tony Heron and Julia Smith, University of York
Resilience as a Divergent Outcome
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Cooper and Shaw (2009: 4)- distinguish between vulnerability as ‘a naturally imposed
and predictable condition’ and resilience as ‘adaptive, allowing structural factors to be
resisted and reshaped’
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Briguglio et al. (2010: 28-9) equates resilience with the adoption of appropriate policies
pertaining to social cohesion, good governance and macroeconomic stability, ‘which
enable a country to withstand or recover from the negative effects of shocks’
1/7/2014
Prepared by: Tony Heron and Julia Smith, University of York
Model 1
1/7/2014
Prepared by: Tony Heron and Julia Smith, University of York
Model 2
1/7/2014
Prepared by: Tony Heron and Julia Smith, University of York
Models 1, 2 and 3
1/7/2014
Prepared by: Tony Heron and Julia Smith, University of York
Towards a future research agenda
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Identifying discrete contextual factors - structural, institutional and behavioral –
accounting for variations in outcome
Role of institutions - not just sites of competitive rent-seeking but understood as
having prior and substantive influence on political mobilisation, electoral competition,
etc.
Role of informal institutions, or ‘rules of the game’ – esp. behavior of leaders, elites
and policy coalitions in managing external shocks
1/7/2014
Prepared by: Tony Heron and Julia Smith, University of York