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Economic Welfare, International Business and Global Institutional Change

Edited by Ram Mudambi, Pietro Maria Navarra and Giuseppe Sobbrio

The distinguished authors in this volume address the fundamental causes for such heterogeneous international experiences, placing particular emphasis on the role of institutions. They demonstrate how the study of economic development is increasingly linked to the development of institutions, which allow for more complex exchanges to occur in markets and societies. Institutions can be understood as rules or constraints that channel individuals' actions in specific directions, and can be formal or informal depending on their genesis. The book highlights the connection between institutions and economic welfare by examining countries at different stages of development. Although the authors' study material effects, they also look at individual well-being which is more strongly influenced by the non-material products of institutions such as opportunity, freedom and relationships. They move on to highlight the role of institutions in global business, in terms of innovation, entrepreneurship and foreign direct investment. In the concluding chapters they focus on the actual process of transition from one institutional framework to another. Amongst other examples, they examine reforms to international financial institutions and constitutional adjustments in transition countries.
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Chapter 5: Institutional Design in Plural Societies: Mitigating Ethnic Conflict and Fostering Stable Democracy

Bernard Grofman and Robert Stockwell


* Bernard Grofman and Robert Stockwell A fundamental challenge faced by many countries is the accommodation of ethnic and religious diversity (Diamond and Plattner, 1994). Nations which are multiethnic in character but in which ethnic differences have been minimized in importance are commonly referred to as pluralistic. In contrast, plural, or ‘deeply divided,’ societies are those where politics is organized largely or entirely along ethnic lines, and two or more ethnic groups compete for power at the center of the political system. The potential for severe ethnic conflict is greatest in plural societies. In the worst case, in plural societies we may have civil wars between competing ethnies1 that are fought with genocidal fury, as in Rwanda. But even in pluralist societies there are many domains where ethnic conflict remains possible, even if it is confined to individual acts of intolerance or small-scale protests or the occasional so-called ‘race riot.’ In the post-World War II period, transnational migration, including an influx of people from former colonies (for example, Algerians into France, Indians and West Indians into the UK) and international refugees (whose recent impact, relative to total population, has been especially marked in Scandinavia), has led to significant changes in the ethnic composition of a number of industrialized nations. Moreover, ethnic issues that had previously been kept off the political agenda (for example, Quebec nationalism in Canada, Catalan nationalism in Spain, Scottish nationalism in the UK) have led to ongoing negotiations and/or major political reorganizations, including in many instances a...

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