# Conflit ethnique et développement en présence de migration

Karine Tremblay

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Cahiers
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MSE

Conflit ethnique et développement
en présence de migration

Karine TREMBLAY

2000.09
Conflit ethnique et développement
en présence de migration$^0$.

Karine TREMBLAY

(TEAM, Université Paris I Sorbonne et CNRS)

Correspondance: 106 Bd de l'Hôpital, 75013 Paris, France.

Fax: (33) 1 44 07 83 37. E-mail: tremblay@univ-paris1.fr

January 14, 2000.

Résumé

Cet article s'inscrit dans la continuité des études récentes sur l'impact des variables ethniques sur la performance économique. Le canal des migration y est exploré, pour tenter d'expliquer la relation négative observée empirique-ment entre variables ethniques et performance. Nous supposons des con-‡its ethniques redistributifs, qui entraînent l'adoption de politiques préféren-tielles de discrimination positive, modélisées sous forme d'une taxation des minorités ethniques au pro...t des communautés autochtones. La migration répond à un di¤érentiel de revenu inter-ethnique, dans une perspective de pri-vation relative. Le modèle permet d'analyser les conséquences migratoires, productives et redistributives de la discrimination. L'analyse d'une discrim-ination 'optimale' permet d'expliquer les di¤érences internationales de degré de politiques ethniques observées empiriquement dans le monde. Celles- ei pourraient résulter de di¤érences de préférences sociales, mais aussi de struc-tures de la population par quali...cations et origine ethnique.

Mots-elés

Con‡its ethniques / Discrimination / Politiques préférentielles / Taxation /
Migration / Privation

Classi...cation JEL

F22 Intern. migration –J15 Ec. of minorities –J71 Discrimination.
Revisiting ethnicity and economic performance :
Ethnic discrimination and deprivation-induced migration.

Abstract

In this study, we follow up on recent analyses of ethnic variables' impact
on performance, and explore an explanation through the migration channel.
We hypothesize that redistributive ethnic conflicts lead to implementation
of preferential policies, modelled as a taxation of ethnic minorities in favor
of an indigenous group. Migration responds to inter-ethnic wage gaps, in a
relative deprivation perspective. The model allows to analyze the migratory,
productive, and redistributive consequences of discrimination. Analysis of
'optimal' discrimination also provides a potential explanation for observed
international differences in ethnic policies: which could result from different
societal preferences or population structures by skills and ethnicity.

Keywords

Ethnic conflicts / Discrimination / Preferential policies / Taxation / Migration / Deprivation
# 1 Introduction

> "Over recent decades, the presence of civil conflict appears to be one of the major causes of underdevelopment: six of the worst ten performers in the world, judged by HDI or GNP per capita, are countries which currently have, or have recently had, severe civil wars" (Stewart and O'Sullivan, 1998)

Economists have demonstrated a growing interest in ethnic issues for the last ten years, fostered by the multiplication and mediatisation of ethnic conflicts worldwide<fnref n="1" />. Previous research on ethnic matters mostly focused on ethnic discrimination (Becker, 1957; Arrow, 1972) and corrective action (Coate and Loury, 1993). More recently, game theorists have attempted to explain ethnic violence (Ortona, 1998) while development economists have focused on the political economy of ethnic conflicts (Bardhan, 1997) and the growth impact of ethnicity (Easterly and Levine, 1997; Temple, 1998; Arcand et al., 1999).

The latter trend gave rise to a ...erce debate following Easterly and Levine's ...ndings that ethnic diversity is negatively correlated to the rate of economic growth. Their explanation for this result is that ethnic diversity leads to bad economic policies. Arcand et al. have in contrast emphasized that more than ethnic diversity, conflict and polarization are the cornerstone in explaining this negative impact on growth.

This paper builds on the latter framework, assuming that ethnic diversity is harmful for growth only when leading to polarization and conflict. Analyses of origins of ethnic conflicts by sociologists and political scientists insist on the role of ethnic differences in economic status, wealth and income distribution. This is one reason why preferential policies have so often been promoted to limit the risks and extent of conflicts, by redistributing economic opportunities along ethnic lines.

We model one channel through which ethnic conflicts may affect production and growth: implementation of preferential policies and subsequent migration of skilled labor. To the best of our knowledge, this link has

<footnote n="0">⁰We are indebted to J-P. Laargue, S. Lambert, Y. Decreux, T. Piketty, J-L. Arcand, P.N. Junankar, C. Napoleon and participants at the Uref Conference on the role of capital in development held in Ouagadougou (Burkina Faso) and Seminar on the Ethics of development (Versailles-St-Quentin University, France) for useful comments on earlier versions of this paper that have substantially improved its content. All remaining errors are those of the author.</footnote>

<footnote n="1">¹Sri-Lanka, Fiji, Rwanda, and former Yugoslavia... are among the most illustrative exemples.</footnote>
not been studied formally yet<fnref n="2" />, though empirical evidence records numerous
cases when ethnic conflicts and discrimination have led skilled discriminated—
against minorities to emigrate, with adverse economic consequences (Uganda,
Fiji...).

We consider moderate ethnic conflicts, taking the form of preferential policies, and analyze how such redistributive policies may affect migration decisions of skilled individuals. Our model rests on the assumption that only skilled individuals are actually mobile due to restrictive immigration policies in receiving countries, while unskilled labor cannot migrate. We also posit that individuals migrate when they feel deprived in relative terms, following Gurr's (1970) concept of relative deprivation, applied to migration analysis by Stark (1984). The main point is that when preferential policies are implemented, feelings of relative deprivation arise for discriminated-against minority individuals (increasing their migration incentive). Ethnic conflict and preferential policies thus lead to increased emigration of minority skilled individuals, and can in turn affect production due to skills shortages and complementarity in the production process.

Another focus of our analysis is to explain why some multiethnic states implement extensive preferential policies while others do not. Obvious explanations may rest on different societal preferences. More unexpected explanations might be linked to different labor structures. In order to tackle these issues, we analyze 'optimal' discrimination in a public choice perspective.

Section 2 presents the model framework and main assumptions, followed by the productive and redistributive impacts of preferential policies in sections 3 and 4. Section 5 focuses on performance-neutral 'optimal' redistribution, while conclusions are presented in section 6.

## 2 Model

We consider a small open economy with a multi-ethnic population<fnref n="3" />. To simplify, we assume an indigenous community and an ethnic minority<fnref n="4" /> (la-

<footnote n="2">²An exception is Epstein et al. (1998), although their model does not focus on ethnic conflict, and uses a different migration function.</footnote>

<footnote n="3">³We do not judge of the consistency of a classification of human beings on ethnic grounds, but rather analyze its consequences when ethnic membership is recognized and used by the State to identify policy benefits.</footnote>

<footnote n="4">⁴The terms 'indigenous' and 'minority' are only labels. In many cases, ethnic minorities are actually very ancient within the State, and should thus be considered indigenous as well. Also, most multi-ethnic countries have several ethnic minorities. What is important here is the status vis-a-vis preferential policies, i.e. benefits if indigenous, or 'victim' otherwise.</footnote>
belled i and m henceforth). Ethnic membership of individuals is observable<fnref n="5" />, but employers have no speci...c taste for discrimination<fnref n="6" />. Besides, individuals do not differ in productivity according to ethnic membership. Labor from both ethnic communities is thus perfectly substitutable in production, although substitutability is only partial among skill levels. Production derives from a Cobb-Douglas constant returns to scale technology<fnref n="7" /> combining capital (K), skilled labor (Ls) and non-skilled labor (LN).

$$Y = AK^{\gamma}L_{s}^{-\gamma}L_{N}^{1-\gamma}i^{\gamma}i^{-\gamma} \quad (1)$$

The opening of the economy allows for migration of its population. However, we assume that due to restrictive immigration policies abroad, only skilled individuals can actually migrate<fnref n="8" />. The labor force is thus given by:

$$L_s = L_{si} + L_{sm} \quad (2)$$

$$L_N = L_{Ni} + L_{Nm} \quad (3)$$

In the absence of discrimination, factors are paid at their marginal productivity. Capital being perfectly mobile internationally, its price equals the international interest rate r.

$$r = \frac{Y}{K} \quad (4)$$

$$!_s = \frac{-Y}{L_s} \quad (5)$$

<footnote n="5">⁵Implying that implementation of preferential policies does not face identification problems.</footnote>

<footnote n="6">⁶This assumption is obviously debatable in most societies characterized by ethnic-conFLICT, but we aim at studying the impact of preferential policies only, i.e. institutional discrimination.</footnote>

<footnote n="7">⁷The unitary elasticity of substitution implied by this constant returns Cobb-Douglas production function is obviously debatable. Real life production probably involves some degree of complementarity between capital and skilled labor. However, we prefer to focus here on a perfect substitutability framework in order to isolate mechanisms without their relying on assumptions regarding elasticities of substitution. It could of course be interesting to test the robustness of the model results to the type of production function used (especially when relaxing the constant returns assumption, or introducing CES between capital and skilled labor).</footnote>

<footnote n="8">⁸The same result could be obtained by assuming large migration costs and poor...nancial markets, so that unskilled individuals cannot afford to move nor borrow the money. Free entry of skilled individuals is made possible by the small size of the economy, and the negligible impact of these migrants on the host country wages. This assumption is consistent with observed immigration policies in major receiving countries (USA, Canada, Australia), where skills are valued and attracted.</footnote>
$$ !_N = \frac{(1 \bar{i} \stackrel{\text{®}}{\bar{i}} \bar{i}^{-}) Y}{L_N} \qquad (6) $$

We now consider the case when the government decides to achieve some redistribution, with an aim to limit the extent of ethnic conflicts. Preferential policies are implemented in favor of the indigenous. These policies can focus on different sectors (education, public service, banking, industry), and may take different forms: quotas (public jobs, licences) or preferential access to certain services (university, scholarships, loans). Whatever form, these measures always result in discriminating individuals according to the ethnic criterion. Individuals from the ethnic minority then have to face a cost corresponding to getting better marks or skills (university access, jobs), or paying a gurehead (loans, licences). They receive a lower return to their skills. This amounts to considering that minority individuals' incomes are taxed as compared to the discrimination-free environment<fnref n="9" />. Symmetrically, indigenous individuals have their incomes increased by discrimination.

Implementation of preferential policies is thus modelled as a taxation of minority incomes and its redistribution to the indigenous, similarly to Epstein et al.<fnref n="10" /> (1998). The redistribution is assumed to be efficient (no loss) with identical tax rates for the skilled and unskilled. Wages are now differentiated (!) according to skills and ethnic membership.

$$ !_{Si} = !_{S}(1 + t_{i}) \qquad (7) $$

$$ !_{Sm} = !_{S}(1 \bar{i} t_{m}) \qquad (8) $$

$$ !_{Ni} = !_{N}(1 + t_{i}) \qquad (9) $$

$$ !_{Nm} = !_{N}(1 \bar{i} t_{m}) \qquad (10) $$

<footnote n="9">⁹We assume discrimination to affect wages, but not capital incomes despite the fact that minority skilled individuals often hold a significant share of capital. This assumption is however justified by the perfect mobility of capital, making it highly reactive to discrimination. Given the high level of FDI in most developing economies, taxing non-indigenous capital is in fact almost impossible. Besides, evidence suggests that preferential policies are often implemented with the support of minority capitalist elites (Malaysia, Sri Lanka), who trade-for-discrimination in the wage sector against a non-intervention on the private capital market.</footnote>

<footnote n="10">¹⁰Their model does not refer to ethnic conflicts explicitly though... but uses the same idea of redistributive taxation as a way to express proximity to the State leaders in presence of conflicting social groups.</footnote>
where $t_m$ is the discrimination rate faced by minority individuals (ranging from 0 to 1) while $t_i$ is that bene...ting the indigenous. Budget balance of the redistribution process gives:

$$t_i = \frac{L_{Sm}!S + L_{Nm}!N}{L_{Si}!S + L_{Ni}!N} t_m \quad (11)$$

What about migration ? Standard economic approaches of migration view it as an investment where individuals migrate if the migration bene...ts offset its costs. Traditionally, the bene...ts are represented by some measure of income differentials, either gross (Sjastaad, 1962), or improved by including the probability to ...nd employment in the destination region (Harris and Todaro, 1970). Signi...cant theoretical advances were achieved in the 80s with the New Economics of Migration, initiated by Stark (1984). This strand of research has explored new explanatory variables to the migration decision. Among them, relative deprivation is advocated to explain migration ≠ows. Stark indeed indicates that people can have an incentive to migrate if they feel deprived in relative terms, when comparing their income to that of others in their region of origin<fnref n="11" />. People compare their present income not to that abroad, but rather to that of their citizen fellows. This is not to say that Stark denies the importance of income differentials, but he ≠ers an additional explanation based on individuals psychology once traditional determinants taken into account<fnref n="12" />. This approach is thus compatible with traditional analyses insofar as the income differential can be decomposed between an international and an internal differential. The latter ultimately differentiates choices among individuals of similar skills<fnref n="13" />.

Stark's concept of relative deprivation is viewed as a function of the percentage of population richer than the individual, and the extent of the income gap between its income and the richest's. We focus here on a measure of ethnic relative wage gap, where individuals compare their own income to that of agents of similar skills from the other ethnic group<fnref n="14" />. Relative deprivation

<footnote n="11">¹¹"People are engaged in interpersonal income comparisons which are internalized, thus generating psychological costs or bene...ts, frustrations or elations, relative deprivation or satisfaction. (...) these factors motivate locational decisions" (Stark, 1984).</footnote>

<footnote n="12">¹²"Of course, actual migration is a function of other considerations (...) our objective is to examine the migration predictions of the pure relative deprivation theory" (Stark and Yitzhaki, 1988).</footnote>

<footnote n="13">¹³Given our assumption of a two countries model, we can neglect choices between alternative destinations, and thus consider the international differential to be identical for all, and depend only on skill level.</footnote>

<footnote>Even when this international differential changes due to the consequences of migration on wages in origin country, it remains identical for all individuals.</footnote>

<footnote n="14">¹⁴Capital income is assumed to be unaffected by preferential policies. We thus consider relative deprivation to derive exclusively from wage income comparisons.</footnote>
is assumed to be an increasing function D of this wage gap, defined on $R^+$ with $D(0) = 0$:

$$D_m = D\left(\frac{!_{Si} i !_{Sm}}{!_{Sm}}\right)$$
$$\text{and } D_i = D\left(\frac{!_{Sm} i !_{Si}}{!_{Si}}\right)$$

When preferential policies (i.e. discrimination) are implemented, the relative ethnic wage gap is negative for indigenous individuals, and only minority individuals feel deprived. Linking relative deprivation to migration derives from the assumed existence of costs C to migration (either transport, opportunity or psychological). Migration occurs when $D_m > C$, that is when

$$\frac{!_{Si} i !_{Sm}}{!_{Si}} > D i^{1}(C).$$

We will henceforth denote $\hat{A}$ this inter-ethnic wage gap threshold inducing migration. It depends on both the extent of migration costs, and the functional form of the relative deprivation function<fnref n="15" />. It can be interpreted as the extent of tolerance to inter-ethnic redistribution, $\hat{A}$ being all the more important that migration response to ethnic wage differences is low. Besides this altruistic interpretation, $\hat{A}$ can also reflect factors that offset relative-deprivation motives in the migration decision (preference for native country, presence of kin in origin country...). Individuals thus migrate when deprivation exceeds migration costs, making the move worthwhile.

Migration equilibrium, characterized by indifference to migration, is given by:

$$\frac{!_{Si} i !_{Sm}}{!_{Sm}} = \frac{t_i + t_m}{1 i t_m} = \hat{A} \qquad (12)$$

Obviously, no one has an incentive to migrate in a discrimination-free environment. However, when discrimination is introduced, migration decisions depend on the discrimination rate $t_m$, and recall the 'vote with one's feet' concept defined by Tiebout (1956), where locational choices depend on scal policies in alternative destinations.

It is noteworthy that the model allows for emigration of skilled individuals, but not for immigration nor return migration of previous emigrants. This strong assumption lies on two grounds. First, the absence of immigration can be justified by preferential policies themselves. Potential immigrants would indeed enter the country with a non-indigenous status, and would

<footnote n="15">¹⁵We assume this threshold to be exogenous for now, although it would be interesting to endogenize it in future extensions.</footnote>
thus face discrimination. It follows that they will likely prefer alternative
discrimination-free destinations<fnref n="16" />. Besides, migration is costly. Return of
migrants is thus unlikely, unless planned initially. Non-return of migrants is
all the more likely when migrants have migrated for socio-political reasons,
as demonstrated in a recent empirical analysis (Tremblay, 1998).

3 Impact on migration and production

In the discrimination-free environment, no-one has a relative deprivation incentive to migrate. We now turn to the impact of preferential policies on migration and equilibrium. Three migration regimes follow one another as the discrimination rate $t_m$ rises. First, no-one migrates as long as the inter-ethnic relative wage gap remains below the tolerance threshold $\bar{A}$. Above $\bar{A}$ however, migration starts for some skilled individuals from the minority<fnref n="17" />. Wages and the relative wage gap adjust after these ...rst departures, as we will see below, giving way to a new migration equilibrium and so on... Thus, all individuals do not migrate together, and the economy experiences waves of migration with rising $t_m$. These migration equilibria prevail as long as the minority population is comprised between $L_{Sm, max}$ and 0, where $L_{Sm, max}$ stands for the initial skilled minority population in the economy. Another condition concerns $L_{Si}$, which must be strictly positive for individuals to be able to compare their incomes<fnref n="18" />. Last, discrimination can be increased further without migratory consequences in a third regime, when all minority individuals have left the economy. At that point indeed, unskilled minority members do not have the opportunity to migrate despite feeling increasingly deprived.

Obviously, these three migration regimes are associated with three pro-
duction regimes. In the ...rst and last ones, no migration takes place and
the labor force is kept constant, at $L_{Smax}$ for the former, and $L_{Si}$ for the
latter. Production is thus una...ected, though redistribution takes place. In
the second regime however, migration leads to production adjustments. We

<footnote n="16">¹⁶Empirical evidence indicates several cases when immigrants accept to face discrim-
ination in destination countries due to a net gain despite State discrimination (immi-
grants to Malaysia since the New Economic Policy, South Africa during apartheid...).
Such situations illustrate one limit of the model, resulting from its neglecting the case for
immigration.</footnote>

<footnote n="17">¹⁷For a given value of Á, the migration-generating discrimination rate is obtained from
(11) and (12): $t_m = \frac{\bar{A}(L_{Si}!S+L_{Ni}!N)}{(L_{Sm}!S+L_{Nm}!N)+(\bar{A}+1)(L_{Si}!S+L_{Ni}!N)}$</footnote>

<footnote n="18">¹⁸If $L_{Si} = 0$, skilled labor belongs to the ethnic minority exclusively, and discrimina-
tion does not lead to relative deprivation. It however increases the international wage
differential, but this is not our focus in this paper.</footnote>
focus our analysis on this situation, where the minority has not totally mi-
grated yet, that is migration equilibrium (12). L<sub>Sm</sub> can vary, while other
components of the labor force remain at their initial ...xed levels.

The ...rst step of calculations<fnref n="19" /> gives L<sub>S</sub> as a function of the exogenous variables L<sub>N</sub>, L<sub>Si</sub>, L<sub>Ni</sub>, and parameters ®, −, Á and t<sub>m</sub>.

$$
L_S = \frac{\bar{A}L_{Si}(1 \cdot t_m)}{(1 \cdot 1^{\text{®}})L_N t_m \cdot (1 \cdot 1^{\text{®}} \cdot 1^{-})\bar{A}L_{Ni}(1 \cdot t_m)} L_N = X L_N \quad (13)
$$

Proposition 1 When migration occurs (second regime), the stock of human capital L<sub>S</sub> in the economy decreases in t<sub>m</sub>.

$$
\text{Indeed, } \frac{\partial X}{\partial t_m} = \frac{\bar{i}^{-\acute{A}}(1 \bar{i}^{\text{®}})L_{\text{Si}}L_N}{[(1 \bar{i}^{\text{®}})L_N t_m \bar{i} (1 \bar{i}^{\text{®}} \bar{i}^{-})\acute{A}L_{\text{Ni}}(1 \bar{i} t_m)]^2} \quad \dots < 0
$$

This is not surprising given the latter’s impact on the inter-ethnic wage gap,
feeling of relative deprivation and migration decision.

Proposition 2 On the contrary, L<sub>S</sub> increases in Á, implying that the higher the tolerance to ethnic wage gaps, the lower the impact of discrimination on human capital stock.

$$
\text{Indeed, } \frac{\partial L_S}{\partial \acute{A}} = \frac{\bar{L}_{Si} L_N^2 (1 \cdot t_m) (1 \cdot \text{®}) t_m}{[(1 \cdot \text{®}) L_N t_m \cdot (1 \cdot \text{®} \cdot \bar{\cdot}) \acute{A} L_{Ni} (1 \cdot t_m)]^2} \quad \dots > 0
$$

Increased tolerance to inter-ethnic wage gaps thus generates a migration re-
sponse of individuals for higher values of t<sub>m</sub>.

Proposition 3 Last, L<sub>S</sub> depends on the structure of the labor force. Using (3) indeed, one can note that L<sub>S</sub> rises with L<sub>Ni</sub> and L<sub>Si</sub>, whereas it is lowered by rises in L<sub>Nm</sub>.

$$
\frac{\partial L_S}{\partial L_{Si}} = \frac{\bar{A}(1 \cdot t_m)L_N}{(1 \cdot 1^{\text{®}})L_N t_m \cdot (1 \cdot 1^{\text{®}} \cdot 1^{-})\bar{A}L_{Ni}(1 \cdot t_m)} \quad \dots > 0
$$

$$
\frac{\partial L_S}{\partial L_{Ni}} = \frac{\bar{\bar{\bar{A}}} (1 \cdot \text{®} \cdot \bar{\bar{\bar{\bar{A}}}}) \dot{\bar{\bar{\bar{A}}}}^2 L_{Si} (1 \cdot t_m)^2 L_{Nm}}{[(1 \cdot \text{®}) L_N t_m \cdot (1 \cdot \text{®} \cdot \bar{\bar{\bar{\bar{A}}}} \cdot 1^{-}) \bar{\bar{\bar{\bar{A}}}} L_{Ni} (1 \cdot t_m)]^2} \quad \dots > 0
$$

$$
\frac{\partial L_S}{\partial L_{Nm}} = \frac{\bar{\bar{\bar{\bar{A}}}} (1 \cdot \bar{\bar{\bar{\bar{A}}}} \cdot \bar{\bar{\bar{\bar{A}}}} \cdot \bar{\bar{\bar{\bar{A}}}}) \dot{\bar{\bar{\bar{\bar{A}}}}}^2 L_{Si} (1 \cdot t_m)^2 L_{Ni}}{[(1 \cdot \bar{\bar{\bar{\bar{A}}}}) L_N t_m \cdot (1 \cdot \bar{\bar{\bar{\bar{A}}}} \cdot \bar{\bar{\bar{\bar{A}}}} \cdot \bar{\bar{\bar{\bar{A}}}}) \dot{\bar{\bar{\bar{\bar{A}}}}} L_{Ni} (1 \cdot t_m)]^2} \quad \dots < 0
$$

<footnote n="19"><sup>19</sup>Combining equations (5) (6) (7) (8) (11) and (12).</footnote>
Reasons for these results stand from the budget balance of redistribution. The higher the unskilled minority ($L_{Nm}$) in the population (taxbase), the higher the tax $t_i$ to be redistributed to indigenous members and the inter-ethnic wage gap, leading to increased migration. Symmetrically, societies characterized by a large indigenous population ($L_{Si}$, $L_{Ni}$) will generate lower redistribution per capita and thus lower migration<fnref n="20" />.

As indigenous skilled individuals do not migrate with positive discrimination rates, $L_{Si} < L_S$. Symmetrically, absence of immigration implies that $L_S \ge 6 L_{Smax}$. These conditions provide a range of variation for the discrimination rate $t_m$ given possible migration ¤ows. The upper bound, denoted $\bar{t}_m$, is logically the discrimination rate leading all minority skilled individuals to emigrate, whereas the lower end (denoted $\bar{t}_m$) corresponds to the threshold discrimination rate above which migration occurs<fnref n="21" />. The bounds depend on the population structure, allowing governments di¤erent latitudes for discrimination according to societies considered.

Following are $K = \frac{i^{\oplus} \oplus A}{\bar{r}} X e^{-\frac{1}{1} \frac{\oplus}{\oplus} i^{\oplus}} L_N$ with $X$ defined in (13) and

$$Y = A \frac{\mu^{\oplus} A^{\oplus}}{\bar{r}} \mathbb{P}^{\oplus} \left( \frac{\oplus}{1 \oplus i^{\oplus}} \right) X^{\oplus} \frac{\oplus}{1 \oplus i^{\oplus}} L_N \quad (14)$$

**Proposition 4** Implementation of discrimination leads to a new equilibrium as soon as migration starts, using less capital and less skilled labor. The new production level is lower as compared to the discrimination-free situation

Indeed, $K$ and $Y$ are increasing in $X$, i.e. decreasing in $t_m$.

Implementation of preferential policies thus leads in ...rst inspection to deplore their adverse productive impact. At this stage however, it is worth noting that this negative impact occurs only if migration takes place, that is only if the wage-gap exceeds $\bar{A}$ and the country is in the second migratory regime. If $\bar{A}$ is high enough, discrimination can lead to an ethnic wage gap that does not offset migration costs, and does not lead to migration. In such

<footnote n="20">²⁰Insofar as $L_S$ cannot be negative, $(1 \oplus i^{\oplus})L_N t_m \oplus (1 \oplus i^{\oplus} \oplus i^{-\oplus})\bar{A}L_{Na}(1 \oplus t_m) > 0$, implying that $\frac{\oplus}{\oplus}L_{Si}$ is always positive.</footnote>

<footnote n="21">²¹These lower and upper bounds for $t_m$ are given by:
$$0 < \frac{-\bar{A}L_{Si}L_N + (1 \oplus i^{\oplus} \oplus i^{-\oplus})\bar{A}L_{Ni}L_{Smax}}{\bar{A}L_{Si}L_N + (1 \oplus i^{\oplus} \oplus i^{-\oplus})\bar{A}L_{Ni}L_{Smax} + (1 \oplus i^{\oplus})\bar{A}L_N L_{Smax}} \ge 6 \quad 6 t_m < \frac{-\bar{A}L_{Nm} + (1 \oplus i^{\oplus})\bar{A}L_{Ni}}{\bar{A}L_{Nm} + (1 \oplus i^{\oplus})\bar{A}L_{Ni} + (1 \oplus i^{\oplus})\bar{A}L_N} < 1$$
Conditions for $\bar{t}_m < \bar{t}_m$ are presented in annex.</footnote>

<footnote>Besides, $L_S > 0$ implies that $t_m > \frac{(1 \oplus i^{\oplus} \oplus i^{-\oplus})\bar{A}L_{Na}}{(1 \oplus i^{\oplus} \oplus i^{-\oplus})\bar{A}L_{Na} + (1 \oplus i^{\oplus})\bar{A}L_N}$. We denote $t_{mE}$ this discrimination rate above which $L_S$ exists.</footnote>

<footnote>Comparing $\bar{t}_m$ and $t_{mE}$ (see annex) shows that we always have $\bar{t}_m > t_{mE}$, implying that $L_S$ (and $X$) are always positive above $\bar{t}_m$. This result will be useful further below.</footnote>
a situation, governments may be allowed some margin in adopting ethnic re-distributive policies without suّering from adverse productive impact. High values of Å are more likely if migration costs are high (high costs of property transfer) or if the deprivation function is characterized by a low migration elasticity to discrimination.

## 4 Distributional impact

As far as the impact of discrimination on wages and incomes is concerned, (14) gives:

$$ 
\begin{aligned}
!_S &= -A \frac{\mu_{RA} \mathfrak{P}^{\frac{\beta}{1i\beta}}}{\bar{r}} \times \frac{i(1i\beta i^{-})}{\frac{1}{1i\beta}} \\
!_N &= (1i \beta i^{-})A \frac{\mu_{RA} \mathfrak{P}^{\frac{\beta}{1i\beta}}}{\bar{r}} \times \frac{-}{\frac{1}{1i\beta}}
\end{aligned}
$$

The relative scarcity of skilled labor resulting from migration generates an increase in the skilled wage, and a decrease in the unskilled wage.

**Proposition 5** In the second migratory regime, implementation of preferen-tial policies provides skilled indigenous individuals with an undeniable advan-tage. They bene...t from both the increase in the skilled wage and the ethnic redistribution tᵢ.

This result is consistent with empirical observations that indigenous elites are in general the main bene...ciaries of preferential policies (Horowitz, 1981; Weiner, 1983), and strongly advocate them.

**Proposition 6** On the contrary, non-quali...ed minority individuals suّer from both the decrease in unskilled wage and the tax (discrimination). They are systematically harmed by preferential policies.

This is again consistent with stylized facts.

The impact of preferential policies on other representative agents: skilled minority individuals and unskilled indigenous, is more ambiguous. For these agents, the income e¤ect (wage variation due to skilled migration) is indeed counterbalanced by the redistributive e¤ect (taxation). Results<fnref n="22" /> indicate that skilled minority individuals can under certain conditions bene...t from preferential policies. The direct implication is that insofar as preferential

<footnote n="22">²²Not presented here but available from the author upon request.</footnote>
(17) can be rewritten:

$$ \frac{!_S L_S = Y}{L_{Smax}} \quad 7 \quad \frac{!_N L_N = Y}{L_N} $$
that is $_S!_{initial} \quad 7 \quad _N!_{initial} $$

Proposition 7 If $_S!_{initial} < _N!_{initial}$, then $t_m^* > t_m$ and per-capita income y increases over $[t_m; t_m^*]$, reaches a maximum in $t_m^*$, then decreases until $t_m$.

This situation is unfortunately unlikely, as it would correspond to situations where the initial skilled labor force is large and unproductive, which is not the case in most LDCs.

Proposition 8 If $_S!_{initial} > _N!_{initial}$ in contrast, then $t_m^* < t_m$ and per-capita income y decreases continuously above $t_m$.

Such a situation appears when the initial skilled labor force is rare and productive, which is more realistic in LDCs. Yet, per-capita income-maximizing discrimination rate $t_m^*$ cannot be reached due to migration ‡ows constraints.

Overall, redistributive preferential policies occur within the economy without per-capita income loss as long as no migration takes place. Once the discrimination rate reaches the migration threshold $t_m$ however, part of the skilled minority starts migrating. The above analysis indicates that the most likely situation then, is that of a continuously decreasing per-capita income, until the discrimination rate reaches $t_m$. When all minority individuals have migrated, further increases in $t_m$ operate redistribution without migratory and productive consequences, as the unskilled have cannot migrate.

We now consider that policy leaders are concerned in both achieving redistribution to ease ethnic relations and securing economic performance. They face a trade-off between these two policy aims. Chowdhury and Islam (1996) illustrate this idea:

> "the primary objective of a developmental state is growth per se (...) In a political system underpinned by ethnic diversity, equity is a central objective. Growth is best seen as an e¢-ciency constraint that sets the limits to income transfers to target groups" (Chowdhury and Islam, 1996).

We thus consider that the social utility function leads policy leaders to choose the discrimination (taxation) rate that maximizes per-capita income while achieving the highest redistribution as possible. Obviously, this discrimination rate chosen will be $t_m^*$ if it exists, and $t_m$ if $t_m^*$ is out of the
$[\overline{t_m}; \overline{t_m}]$ interval. We noted above that the latter situation is the most likely, with

$$ \underline{t_m} = \frac{-\overline{\text{ÁL}_{Si}L_N} + (1 \text{ i } \text{®} \text{ i }^-)\overline{\text{ÁL}_{Ni}L_{Smax}}}{-\overline{\text{ÁL}_{Si}L_N} + (1 \text{ i } \text{®} \text{ i }^-)\overline{\text{ÁL}_{Ni}L_{Smax}} + (1 \text{ i } \text{®})L_N L_{Smax}} $$

Proposition 9 $\underline{t_m}$ increases with the size of the indigenous population. On the contrary, a larger minority population increases the taxbase and allows governments less margin in discriminating.

The reason rests on the fact that more bene...ciaries of redistribution (indigé-nous) decrease per-capita bene...t, lower relative deprivation and migration incentive, whereas more taxpayers (minority) have the opposite effect.

This suggests that the level of discrimination that a country can implement depends on country-speci...c characteristics, which affect the trade-off outcome. This analysis thus leads to definite limits to the degree of preferential policies that can be implemented free of cost. These limits depend on country-speci...c characteristics (social tolerance to discrimination Á<fnref n="25" />, labor force structure...) and efficiency constraints... xed by policy leaders.

# 6 Conclusions

Considering the growing number of ethnic conflicts worldwide, and the large extent to which preferential policies have been implemented to monitor them, it appears necessary to carefully study their impact. In that respect, their impact on migration decisions has not been given much attention yet. We have thus developed a theoretical model to see to what extent implementation of preferential policies may affect the economy through its impact on migration decisions by minority individuals. The model gives insight on several stylized facts of ethnic conflicts and discrimination.

It first provides a possible explanation for the empirically observed negative impact of ethnic diversity on economic performance, when polarization and conflict lead to the implementation of discriminatory policies that in turn give skilled minorities an incentive to migrate. In the model this idea is captured by assuming that individuals migrate as soon as the ethnic relative wage gap reaches a psychological tolerance threshold (Á). A new equilibrium is reached, generating lower production. This negative impact of discrimination is however conditioned by the degree of substitutability between skilled and unskilled labor, and the societal tolerance to ethnic wage differences Á.

<footnote n="25">²⁵We assumed that the migration decision-rule is similar for all individuals. That is, Á is a country-level characteristic rather than an individual-speci...c parameter.</footnote>
If this tolerance is high enough, governments may be allowed some margin in
implementing preferential policies without adverse effects on performance.

The results concerning the redistributive impact of preferential policies
are consistent with empirical observations, suggesting that the model per-
forms relatively well in accounting for some stylized facts. Preferential poli-
cies bene...t the elites of the favored group (indigenous) as is often stated,
but can also bene...t the minority elites under certain conditions. The main
victims are the poor (unskilled) from the minority.

Last, an analysis of the 'optimal' discrimination rate provides possible
explanations for the observed variation in the extent of ethnic policies across
countries. These differences could result from different societal preferences (in
the form of migration response to relative deprivation), but more importantly
on labor force structures.

This last point gives rise to policy recommendations. First of all, imple-
mentation of preferential policies is detrimental to production and growth
only insofar as it leads skilled individuals to migrate. If the costs of migra-
tion are not offset by relative deprivation, then governments are allowed some
margin in implementing preferential policies without adverse consequences on
performance<sup>26</sup>. If the latter condition is not fulfilled, redistribution from the
skilled to the unskilled regardless of ethnicity may permit to lower income
inequalities and thus contribute to lowering the occurrence of ethnic con-
tracts at a lower economic cost. This proposition holds insofar as migration
depends on relative deprivation only<sup>27</sup>.

Political economy analyses of preferential policies suggest that these are
very difficult to reverse and not to extend once started. So even if the extent
of preferential policies does not harm production in the short term, these
may have adverse effects in the medium to long term due to i) further in-
creases in discrimination or ii) changes in the societal tolerance to ethnic
wage differences Å as discrimination is maintained over time.

Last, preferential policies shall be implemented with great care as coun-
tries have different margins for discrimination according to their societal
preferences and labor force structures.

These results shall allow to better understand mechanisms through which
moderate ethnic conflicts may affect economies due to human capital right.
This topic appears all the more important in developing countries, where
multi-ethnic societies are frequent, and human capital is scarce.

<footnote n="26"><sup>26</sup>They can however face political opposition by minority parties.</footnote>

<footnote n="27"><sup>27</sup>In real-world situations, international wage differences would probably lead skilled individuals from both groups to emigrate, but such a redistributive pattern would avoid deprivation-induced migration.</footnote>
# 7 Annex

Conditions for L_Q and X to be positive, i.e. $t_{mE} < \bar{t}_m$.

$$ \begin{align*} \therefore \frac{(1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{ÁL}_{\text{Ni}}}{(1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{ÁL}_{\text{Ni}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{Smax}}} < \frac{-\text{ÁL}_{\text{Si}} \text{L}_{\text{N}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{ÁL}_{\text{Ni}} \text{L}_{\text{Smax}}}{-\text{ÁL}_{\text{Si}} \text{L}_{\text{N}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{ÁL}_{\text{Ni}} \text{L}_{\text{Smax}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{N}} \text{L}_{\text{Smax}}} \\ \text{after simplifications... } (1 \mathbf{i}^{\text{R}} \mathbf{L}_{\text{N}}) > 0, \text{ which is true as } \text{L}_{\text{N}} > 0. \end{align*} $$

Existence of the $[\bar{t}_m; \bar{t}_m]$ interval in the 2nd migratory regime, i.e. $\bar{t}_m < \bar{t}_m$.

$$ \begin{align*} \therefore \frac{-\text{ÁL}_{\text{Si}} \text{L}_{\text{N}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{ÁL}_{\text{Ni}} \text{L}_{\text{Smax}}}{-\text{ÁL}_{\text{Si}} \text{L}_{\text{N}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{ÁL}_{\text{Ni}} \text{L}_{\text{Smax}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{N}} \text{L}_{\text{Smax}}} < \frac{-\text{ÁL}_{\text{Nm}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{ÁL}_{\text{Ni}}}{-\text{ÁL}_{\text{Nm}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{ÁL}_{\text{Ni}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{N}}} \\ [\text{L}_{\text{Si}} \text{L}_{\text{N}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{Ni}} \text{L}_{\text{Smax}}][\text{L}_{\text{Nm}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{Ni}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{Smax}}] < \\ [\text{L}_{\text{Nm}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{Ni}}][\text{ÁL}_{\text{Si}} \text{L}_{\text{N}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{ÁL}_{\text{Ni}} \text{L}_{\text{Smax}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{N}} \text{L}_{\text{Smax}}] \\ \text{after simplifications... } \text{L}_{\text{Si}} < \text{L}_{\text{Smax}}, \text{ which is true according to (2).} \end{align*} $$

Evolution of y according to $t_m$ in the 2nd migratory regime.

$$ \frac{@y}{@t_m} = \frac{A^{\frac{\mathbf{i}^{\text{R}}\text{A}}{\bar{\mathbf{r}}}} \left( \frac{\phi^{\text{R}}}{1 \mathbf{i}^{\text{R}}} - (1 \mathbf{i}^{\text{R}}) \text{ÁL}_{\text{Si}} \text{L}_{\text{N}} \times \frac{\bar{\mathbf{i}}^{\text{R}}}{1 \mathbf{i}^{\text{R}}} (1 \mathbf{i}^{\text{R}} \frac{\bar{\mathbf{i}}^{\text{R}}}{1 \mathbf{i}^{\text{R}}} \mathbf{i}^{\text{R}}) \times \mathbf{i}^{\text{R}} \right)}{(1 + \mathbf{X})^2 ((1 \mathbf{i}^{\text{R}}) \text{L}_{\text{N}} t_m \mathbf{i}^{\text{R}} (1 \mathbf{i}^{\text{R}} \mathbf{i}^{\text{R}}) \text{ÁL}_{\text{Ni}} (1 \mathbf{i}^{\text{R}} t_m))^2} $$

Its sign is that of $(1 \mathbf{i}^{\text{R}} \mathbf{i}^{\text{R}} \mathbf{i}^{\text{R}} \mathbf{i}^{\text{R}}) \times \mathbf{i}^{\text{R}})$.

$$ 2 \ 1 \ \bar{\mathbf{i}}^{\text{R}} \ \bar{\mathbf{i}}^{\text{R}} \ \bar{\mathbf{i}}^{\text{R}} \ \bar{\mathbf{i}}^{\text{R}} \times \mathbf{i}^{\text{R}} > 0 $$

after simplifications... $\frac{(1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{Á(L}_{\text{Si}}+\text{L}_{\text{Ni}})}{(1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{Á(L}_{\text{Si}}+\text{L}_{\text{Ni}})+(1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{N}})} > t_m$ and y is increasing for $t_m < t_m^*$.

$$ 2 \ 1 \ \bar{\mathbf{i}}^{\text{R}} \ \bar{\mathbf{i}}^{\text{R}} \ \bar{\mathbf{i}}^{\text{R}} \ \bar{\mathbf{i}}^{\text{R}} \times \mathbf{i}^{\text{R}} < 0 $$

after simplifications... $\frac{(1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{Á(L}_{\text{Si}}+\text{L}_{\text{Ni}})}{(1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{Á(L}_{\text{Si}}+\text{L}_{\text{Ni}})+(1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{N}})} < t_m$ and y is decreasing for $t_m > t_m^*$.

Thus $t_m^*$ corresponds to a maximum of y.

The precise evolution of y as $t_m$ increases depends on the comparison of $t_m^*$ and $\bar{t}_m$, the migration-generating discrimination rate.

2 1st case $t_m^* < \bar{t}_m$, and y is continuously decreasing on $[\bar{t}_m; \bar{t}_m]$.

$$ \begin{align*} \therefore \frac{(1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{Á(L}_{\text{Si}}+\text{L}_{\text{Ni}})}{(1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{Á(L}_{\text{Si}}+\text{L}_{\text{Ni}})+(1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{N}})} < \frac{-\text{ÁL}_{\text{Si}} \text{L}_{\text{N}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{ÁL}_{\text{Ni}} \text{L}_{\text{Smax}}}{-\text{ÁL}_{\text{Si}} \text{L}_{\text{N}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{ÁL}_{\text{Ni}} \text{L}_{\text{Smax}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{N}} \text{L}_{\text{Smax}}} \\ \left[ (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-})(\text{L}_{\text{Si}} + \text{L}_{\text{Ni}}) \right] \left[ -\text{ÁL}_{\text{Si}} \text{L}_{\text{N}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{ÁL}_{\text{Ni}} \text{L}_{\text{Smax}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{N}} \text{L}_{\text{Smax}} \right] < \\ \left[ -\text{L}_{\text{Si}} \text{L}_{\text{N}} + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{Ni}} \text{L}_{\text{Smax}} \right] \left[ (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{Á(L}_{\text{Si}} + \text{L}_{\text{Ni}}) + (1 \mathbf{i}^{\text{R}} \mathbf{i}^{-}) \text{L}_{\text{N}} \right] \end{align*} $$

after simplifications... $\text{L}_{\text{Smax}} < \frac{\bar{\mathbf{i}}^{\text{R}} \mathbf{i}^{\text{R}}}{1 \mathbf{i}^{\text{R}} \mathbf{i}^{\text{R}}} \text{L}_{\text{N}}$

2 2nd case $\bar{t}_m < t_m^*$, and y is ...rst increasing on $\bar{t}_m; t_m^*$ reaches a maximum in $t_m^*$, then decreases continuously on $t_m^*; \bar{t}_m$.

$$ \therefore \text{L}_{\text{Smax}} > \frac{\bar{\mathbf{i}}^{\text{R}} \mathbf{i}^{\text{R}}}{1 \mathbf{i}^{\text{R}} \mathbf{i}^{\text{R}}} \text{L}_{\text{N}} $$
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