The domestic foundations of economic resilience:

Size, ethnic diversity and the politics of economic adjustment

Tony Heron and Julia SmithUniversity of York

UK

Prepared by: Tony Heron and Julia Smith, University of York

Why do ostensibly similar countries often have quite different experiences

adjusting to external shocks? 1. Context - increasing global volatility associated with long-term

structural change - e.g. global food crisis2. Link between ethnic-linguistic diversity and economic

performance3. Importance of size – perception of vulnerability engenders

social cohesion4. Question of resilience - not just economic growth but deeper

politics of economic adjustment

Prepared by: Tony Heron and Julia Smith, University of York

Ethnic diversity and economic performance

• 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

• Mauro (1995) identifies a negative correlation between this and institutional efficiency and corruption, contributing to a poor investment climate and thus weak economic growth

• 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

• La Porta et al (1999) relate ethnic fractionalisation to the quality of governance

Prepared by: Tony Heron and Julia Smith, University of York

• Posner (2004: 853)-only certain ethnic identities are politically mobilised, and thus in a position to effect policy outcomes.

• 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

• 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

Ethnic diversity and economic performance

Prepared by: Tony Heron and Julia Smith, University of York

• Katzenstein (1985) -the tendency of small states to marry successfully participation in world markets with corporatist social partnership and solidaristic welfare regimes

• 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

Size and economic performance

Prepared by: Tony Heron and Julia Smith, University of York

• 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’

• 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’

Resilience as a Divergent Outcome

Prepared by: Tony Heron and Julia Smith, University of York

Model 1

Prepared by: Tony Heron and Julia Smith, University of York

Prepared by: Tony Heron and Julia Smith, University of York

Model 2

Prepared by: Tony Heron and Julia Smith, University of York

Models 1, 2 and 3

Towards a future research agenda

• 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

Prepared by: Tony Heron and Julia Smith, University of York