Generating Economic Growth in Countries with Migration and Fractionalization

Poverty and instability continue to plague many developing countries. Previous research has modelled economic growth and political instability simultaneously accounting for exogenous factors such as ethnic fractionalization. This study builds on that literature by using a three equation system which deals with the endogeneity of fractionalization. Another contribution is the incorporation of migration into the model. Results from a cross-country, panel data set over the years 1996-2014 find that linguistic fractionalization and migration work to lower growth indirectly via increased political instability. Endogeneity is found to be important as religious fractionalization becomes insignificant after accounting for its endogeneity. Results vary by region, with the impact of fractionalization and instability being most important in Sub-Saharan Africa. These results suggest that linguistic and religious diversity are not having the same effects on stability and growth across countries. While some policy makers in the West have expressed concern about migration and fractionalization, they do not seem related to either long-run political stability or economic growth in their countries. Migration and ethnic fractionalization should be a larger concern to policy makers in countries with weak institutions and records of political instability. International organizations and donors need to increase support to developing countries which have received large inflows of migrants and refugees, with this aid being directed towards bolstering the quality of institutions.