Spatial inequality has recently received considerable attention from scholars and decision-makers alike. The growing interest surrounding this issue derives from the fact that spatial inequality – defined as income inequality across geographical or administrative units within a territorial entity (e.g. a country or region) – is related to interpersonal inequality. Spatial inequality is also important because high regional income disparities can lead to voter reaction against the established system and to internal disputes about the distribution of resources, undermining social and political stability and making civil conflict a distinct possibility (Kanbur and Venables 2005, Ezcurra and Palacios 2016).
The impact of different factors on spatial inequality has been profusely examined. The focus has mainly been on the level of economic development, the degree of trade openness, fiscal and political decentralisation, or the quality of government. However, the influence of the ethnic composition of the population has attracted much less attention. Only a limited number of studies on the determinants of spatial inequality until now have been concerned, albeit tangentially, with ethnic fractionalisation as a factor behind rising territorial polarisation (e.g. Ezcurra and Rodríguez-Pose 2013, Lessmann 2014). Fractionalisation indices take into account the identity and size of the various ethnic groups, but they incorporate no additional information about other substantive characteristics of the groups. In particular, these indices do not capture the extent to which the members of each group are spatially clustered, ignoring the degree of segregation within countries. Nevertheless, ethnic segregation is a relevant aspect of regional diversity and there are reasons to expect that it may affect spatial inequality, as ethnic groups often differ in economic terms (Alesina et al. 2016).
However, despite the academic, economic, and political importance of the topic, no previous research has directly addressed the link between ethnic segregation and territorial disparities in income across a large number of countries in the world.1 Our new research aims to fill this gap by examining the extent to which the geographical concentration of ethnic groups shapes regional income disparities (Ezcurra and Rodríguez-Pose 2017). We do this by investigating the relationship between ethnic segregation and spatial inequality in a cross-section of 71 countries with different levels of economic development.
The econometric analysis points to a positive and statistically significant association between ethnic segregation and the magnitude of within-country regional income disparities. More ethnically segregated countries have, on average, higher levels of spatial inequality. This result is robust to the inclusion of a substantial set of covariates potentially affecting spatial inequality and the regional distribution of ethnic groups, such as the stage of economic development, the levels of ethnic fractionalisation and ethnic inequality, country size, the degree of trade openness, artificial borders, state history, geographical factors, or the redistributive capacity of the public sector. Figure 1 shows how ethnic segregation is related to spatial inequality, conditional on our baseline controls.
Figure 1. Ethnic segregation and spatial inequality
Partial regression plot
The existence of a causal relationship between ethnic segregation and territorial disparities in income is confirmed by 2SLS regressions using the instrument for segregation constructed by Alesina and Zhuravskaya (2011), and based on the composition of ethnic groups in bordering countries. Furthermore, the results are extremely robust. They are not driven by influential observations or particular groups of countries, and the findings do not depend on the specific measure used to quantify the levels of spatial inequality and ethnic segregation. Finally, the analysis also reveals the possibility that political decentralisation and the quality of government could act as transmission channels linking ethnic segregation and spatial inequality.
Our research contributes to the existing literature on the determinants of spatial inequality by underlining the role played by ethnic segregation in explaining regional income disparities. The results suggest that the spatial distribution of ethnic groups has important implications for within-country differences in development, and therefore has to be taken into consideration by policymakers when designing effective territorial development strategies. This is of particular importance for countries where existing ethnic segregation, connected to high levels of spatial inequality, make the risk of social unrest and violent armed conflict a real possibility. In particular, the sort of conditions that put internal stability in jeopardy are more likely occur in low- and middle-income countries, as they generally combine higher levels of both ethnic segregation and spatial inequality.
Alesina, A, and E Zhuravskaya (2011), “Segregation and the quality of government in a cross section of countries”, American Economic Review 101, 1872-1911.
Alesina, A, S Michalopoulos, and E Papaioannou (2016), “Ethnic inequality”, Journal of Political Economy 124, 428-488.
Ezcurra, R, and D Palacios (2016), “Terrorism and spatial disparities: Does interregional inequality matter?”, European Journal of Political Economy 42, 60-74.
Ezcurra, R, and A Rodríguez-Pose (2013), “Does economic globalization affect regional inequality? A cross-country analysis”, World Development 52, 92-103.
Ezcurra, R, and A Rodríguez-Pose (2017), “Does ethnic segregation matter for spatial inequality? A cross-country analysis”, CEPR Discussion Paper no. 11913.
Kanbur, R, and A J Venables (2005), Spatial Inequality and Development, Oxford: Oxford University Press.
Kyriacou, A P, and O Roca-Sagalés (2012), “The impact of EU structural funds on regional disparities within member states”, Environment and Planning C: Government and Policy 30, 267-281.
Kyriacou, A P, L Muinelo-Gallo, and O Roca-Sagalés (2015), “Fiscal decentralization and regional disparities: The importance of good governance”, Papers in Regional Science 94, 89-107.
Lessmann, C (2014), “Spatial inequality and development - Is there an inverted-U relationship?”, Journal of Development Economics 106, 35-51.
 Kyriacou and Roca-Sagalés (2012) and Kyiriacou et al. (2015) include a measure of segregation when analysing the effect on regional disparities of the EU Structural Funds and fiscal decentralisation. The primary focus of these papers, however, is not to study the link between ethnic segregation and spatial inequality. Furthermore, the samples in Kyriacou and Roca-Sagalés (2012) and Kyiriacou et al. (2015) comprise, respectively, EU and OECD countries alone.