Tony Heron and Julia Smith University of York UK

1. The domestic foundations of economic resilience:Size, ethnic diversity and the politics of economic adjustment Tony Heron and Julia SmithUniversity of YorkUK Prepared by: Tony Heron and Julia Smith, University of York

2. Why do ostensibly similar countries often have quite different experiences adjusting to external shocks? • Context - increasing global volatility associated with long-term structural change - e.g. global food crisis • Link between ethnic-linguistic diversity and economic performance • Importance of size – perception of vulnerability engenders social cohesion • Question of resilience - not just economic growth but deeper politics of economic adjustment Prepared by: Tony Heron and Julia Smith, University of York

3. Ethnic diversity and economic performance • Easterly and Levine (1997) found a robust correlation between ethnic diversity and weak economic growth associated with, among other things, low schooling rates, underdeveloped financial systems, distorted foreign exchange markets and poor infrastructure • Mauro (1995) identifies a negative correlation between this and institutional efficiency and corruption, contributing to a poor investment climate and thus weak economic growth • Rodrik (1997) attributes the difficulties ethnically divided societies have in absorbing external economic shocks to social conflict and the inability to agree upon appropriate policy responses • La Porta et al (1999) relate ethnic fractionalisation to the quality of governance Prepared by: Tony Heron and Julia Smith, University of York

4. Ethnic diversity and economic performance • Posner (2004: 853)-only certain ethnic identities are politically mobilised, and thus in a position to effect policy outcomes. • Dahl 1971; Horowitz 1985; it is the middle range of heterogeneity that poses the biggest risk to social stability; by contrast, highly heterogeneous societies are more likely to be characterised by crossing-cutting cleavages, which provide incentives for coalition building among different ethnic groups • Horowitz 1985; Posner 2005- the probability of social conflict in heterogeneous societies is influenced by other political variables, including the relative size of different ethnic groups, the degree of territorial segmentation and the distribution of power between groups Prepared by: Tony Heron and Julia Smith, University of York

5. Size and economic performance • Katzenstein (1985) -the tendency of small states to marry successfully participation in world markets with corporatist social partnership and solidaristic welfare regimes • Easterly and Kraay (2000) - even when controlling for a range of factors, small states have generally higher income and productivity levels than larger states. Why? A higher degree of social cohesion, small agricultural sectors, higher levels of foreign aid per head and much higher ratios of trade to GDP Prepared by: Tony Heron and Julia Smith, University of York

6. Resilience as a Divergent Outcome • Cooper and Shaw (2009: 4)- distinguish between vulnerability as ‘a naturally imposed and predictable condition’ and resilience as ‘adaptive, allowing structural factors to be resisted and reshaped’ • Briguglio et al. (2010: 28-9) equates resilience with the adoption of appropriate policies pertaining to social cohesion, good governance and macroeconomic stability, ‘which enable a country to withstand or recover from the negative effects of shocks’ Prepared by: Tony Heron and Julia Smith, University of York

7. Model 1 Prepared by: Tony Heron and Julia Smith, University of York

8. Model 2 Prepared by: Tony Heron and Julia Smith, University of York

9. Models 1, 2 and 3 Prepared by: Tony Heron and Julia Smith, University of York

10. Towards a future research agenda Identifying discrete contextual factors - structural, institutional and behavioral – accounting for variations in outcome Role of institutions - not just sites of competitive rent-seeking but understood as having prior and substantive influence on political mobilisation, electoral competition, etc. Role of informal institutions, or ‘rules of the game’ – esp. behavior of leaders, elites and policy coalitions in managing external shocks Prepared by: Tony Heron and Julia Smith, University of York