Ethnic Tension and Economic Development : An Econometric Panel Data Study of Ethnic Tensions Impact on Economic Development in African Countries

Sammanfattning: A high level of ethnic diversity characterizes the African continent and several countries have struggled with tensions between ethnic groups. Research has explained Africa’s history of slow economic growth as a result of ethnic diversity but few have investigated the impact of ethnic tensions on economic development. In this thesis we analyse whether tensions between ethnic groups have a negative impact on economic development in African countries. By using panel data analysis, we examine the relationship between ethnic tension and GDP per capita for 35 African countries over the time period 1985 to 2014. Our results confirm that ethnic tension has a negative impact on economic development in Africa. Tensions are likely to arise as a result of discrimination and exclusion of one or a several groups in a society. If individuals are denied consumption of equal shares of economic resources, there is a risk that they take actions that cause tensions between groups. The negative relationship between ethnic tension and economic development is a result of decreased capital accumulation, which restrains long-term economic development. In countries with low-income levels the impact on capital accumulation is more severe. Competition of limited resources decreases incentives for capital accumulation. Further, tensions between groups inhibit development of human capital since all individuals do not have the possibility to contribute with their knowledge and experience. That implies weakened economic development because possible innovation is lost. This thesis emphasizes the importance for African countries to implement policies that encourage the rights for minorities and other marginalized groups in the society. Ethnic representation in governmental positions is suggested in order to ensure equal distribution of aggregated resources.