UCLA

In most studies of the impact of ethnic diversity on economic growth, diversity is hypothesized to affect growth through its effect on macroeconomic policies. This article shows that most measures of ethnic diversity (including the commonly used ELF measure) are inappropriate for testing this hypothesis. This is because they are constructed from enumerations of ethnic groups that include all of the ethnographically distinct groups in a country irrespective of whether or not they engage in the political competition whose effects on macroeconomic policy making are being tested. I present a new index of ethnic fractionalization based on an accounting of politically relevant ethnic groups in 42 African countries. I employ this measure (called PREG, for Politically Relevant Ethnic Groups) to replicate Easterly and Levine's influential article on Africa's "growth tragedy." I find that PREG does a Much better job of accounting for the policy-mediated effects of ethnic diversity on economic growth in Africa than does ELF.