Ethnic diversity and inequality: a cross-country analysis

This paper analyzes the impact of ethnic diversity on inequality for a panel of countries using insights from existing literature on race relations, redistribution and ethnic/racial politics. The empirical evidence suggests that ethnic diversity as measured by an index of fractionalization has a statistically significant inequality-increasing effect that is robust to specification changes. This inequality-increasing effect appears to decrease with greater democracy, lower concentration of political power and improvements in law and order. However, there does not appear to be systematic evidence supporting the hypothesis that greater ethnic diversity increases inequality through lowering redistribution as some researchers have previously suggested.