Reducing the Impact of Ethnic Tensions on Economic Growth – Economic or Political Institutions?

Atin Basu Choudhary, Virginia Military Institute
Michael Reksulak, Georgia Southern University
Geoffrey Parker, University of Mississippi

Abstract

We use a standard growth accounting model and show that ethnic tensions reduce per capita growth rates. We also find evidence that “good” economic and political institutions improve per capita growth rates. More importantly, good economic institutions mitigate the effect of ethnic tensions on per capita growth while good political institutions do not. Consequently, in such tenuous state of affairs it is foremost capitalist freedom that promotes peace and development.