Growth suffers when there is inequality between different ethnic groups

I quote from an article in the current issue of The Economist:

ECONOMISTS have long recognised that there is an association between inequality and development. Unequal incomes can impair growth if those with low incomes suffer poor health and low productivity as a result. But in a forthcoming paper* in the Journal of Political Economy, three economists look at the question in a new light. What may matter most for development, they argue, is not inequality in itself, but economic differences between different ethnic groups. 

The authors pinpoint the location of 2,129 ethnic and 7,581 linguistic groups in 173 countries. Then, to estimate their wealth, they use data on night-time light intensity from satellites. (If a given area has more lights, it is likely to be richer.) That allows them to produce an “ethnic Gini index”, a measure of inequality between different ethnic groups within a country. They find that sub-Saharan Africa and East and South Asia are the most ethnically unequal regions, thanks to small but prosperous groups such as Arabs in west Africa. Western Europe, by contrast, is the most ethnically equal. 

The authors show that as a country’s ethnic inequality falls, average GDP per person rises. A one-standard-deviation decline in a country’s ethnic Gini index—the equivalent of moving from the level of Nigeria to that of Namibia—is associated with a 28% increase in GDP per person. It seems likely that ethnic inequality leads to low levels of development, not the other way around. After all, in other tests the authors find that ethnic inequality mostly reflects unequal geographical endowments, such as more fertile land and distance to the coast.

The paper by  Alesina, Alberto, Stelios Michalopoulos, and Elias Papaioannou  (“Ethnic Inequality.” Journal of Political Economy.) notes that there is little ethnic diversity measured in the United States according to the measure that the authors use.

I suspect, however, that we treat Blacks, American Indians and Hispanics as ethnic minorities, and the low investment we as a nation make in human capital (health services, education, etc.) in the neighborhoods where these minorities live significantly reduces our overall economic growth and has done so for many decades. Thus I suspect all Americans are poorer for the prejudice that has been endemic in our society.