“The Political Economy of Ethnic Income Inequality: Lessons From Guyana”
Abstract: There is a growing demand for diversity and inclusion across the world and this brings intergroup conflict into sharper focus. This paper takes its cue from Guyana’s persistent ethnic contestation and develops a simple model of political-economic competition between Indo- and Afro-Guyanese with several generalisable insights. When intergroup competition dominates, the dominant group’s share of profit income relative to the out-group’s share of wage income determines overall income inequality. A key result is that democracy produces the worse of two equilibria, where the intergroup income inequality is highest. Moreover, the model shows that a weak state emerges when the dominant group becomes a majoritarian tyrant. A despotic state is possible by the dictatorship of an ethnic minority. A third possibility is a saddle path narrow corridor, which suggests that an inclusive state is premised on intra-elite and intra-society distributional concessions.