Essays on Institutions, Ethnic Divisions and Poverty

What is the relationship between ethnic heterogeneity and the ability of the poor to organize and influence democratic governments to improve their welfare? Political scientists and economists have argued that democracies are superior to non-democracies for improving poverty outcomes because they are advantaged with institutional mechanisms such as universal suffrage and majority rule. Yet, there are numerous cases where democracy has done little to help the poor. Through a series of essays, I examine the effects of ethnic heterogeneity of the poor on the effect of democracy and oil revenue on poverty. I argue that ethnic heterogeneity reduces the likelihood that poor citizens will organize and pressure political elites to provide public goods and services that improve their general welfare. As a result, democracy and oil revenue are less likely to improve poverty outcomes when the poor are ethnically heterogeneous compared to being homogeneous. The first chapter presents a cross-national study to help us understand the general effects of ethnic heterogeneity of the poor on the effects of democracy on poverty. The results are not statistically significant. It is not clear if the lack of significance is due to notable endogeneity issues or that the hypothesis is wrong. For that reason, the second chapter takes advantage of an institutional natural experiment in Indonesia to produce more reliable results. The results show that ethnic heterogeneity of the poor significantly affects the effect of elections on the majority of the dependent variables. In the third chapter, I test the effects of ethnic heterogeneity of the poor on the effect of oil revenue among Brazilian municipalities. The revenues local democratic governments depend upon increased significantly due to the sharp increase of offshore oil royalties and world oil prices from early 1990s to the early 2010s. This allows me to measure the effects of ethnic heterogeneity of the poor on the effect of oil revenue on poverty at the municipal level. Results suggest that ethnic heterogeneity of the poor does not significantly affect the effect of local oil revenue on poverty outcomes in Brazil.