The Causal Effects of Ethnic Diversity: An Instrumental Variables Approach

Abstract

Ethnic diversity is endogenous to economic development in the long run. Yet the standard approach in economic research is to treat ethnic diversity as an exogenous factor. By identifying instruments for ethnic diversity, we correct this misspeci ca- tion and establish that ethnic diversity has an exogenous in uence on income levels, economic growth, corruption, and provision of public goods. Earlier results based on OLS estimations may have underestimated the negative e¤ects of high levels of ethnic diversity.