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Social Networks – markets are more complete – more trade – better allocation of resources – higher industrialisation – improved economic performance Important point here: markets are incomplete due to asymmetric information Better information flow in non-polarised societies – reduces the extent of information asymmetry – leading to better enforcement mechanisms. Social links: promote the development of credit, insurance and other mar- kets where asymmetric information matters Role of reputation and trust in network formation in manufacturing – McMillan & Woodruff, Banerjee & Duflo. Economic Under-performance in Africa Easterly and Levine (1997): Africa’s growth tragedy Countries with more ethnolinguistic fractionalisation – tended to grow more slowly – identified as principle cause of slow development. Reynal-Querol (1999): religious fractionalisation has significant impact on growth rates – having high fractions of the populations in animist cults – has an impact on economic growth.
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Unformatted text preview: has an impact on economic growth. Ethnolinguistic fractionalisation: Probability that any two people drawn from the population are from distinct groups. ²ormally: ELF ≡ 1 − ∑ i b proportion of ethnolinguistic group i in the population B 2 The we need to address is that whether ethnic diversity per se is an im-pediment to development. Alesina, Baqir and Easterly (1999) : They ±nd that in US, high levels of ethnic diversity are associated with up to 25% lower funding for schools and other public services in US municipalities. Mauro (1995): National ethnic diversity signi±cantly associated with poor bureaucratic performance and political instability across countries. Prob-lem: can’t control for much in these regressions. It is not entirely clear what the speci±c mechanisms are through which ethnic diversity affects economic performance. Possibly, with diversity, Development Economics, LSE Summer School 2007 208...
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