Ethnic Fractionalization and Segregation in Developed Societies

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Two years ago I spent four months in Chicago, studying at Northwestern University. The campus is very close to downtown and I used to take advantage of my spare time to explore the “Windy City”. I was very impressed by the lights of the skyscrapers and the crowded beaches along lake Michigan, but when I asked for advice on new places to see, everyone would warn me: “Don’t go south, it is dangerous”.

The south of the metropolitan area of Chicago is known for being the place where gangs organized their illegal activities; still today the crime rate is very high and shootings are shockingly frequent. Driven by curiosity, I decided to go and personally have a look. Everything seemed regular, until I turned a corner and the scenario in front of me changed completely, as I was entering the historic black neighborhood: Bronzeville. Black children were playing on the streets, and shops were crowded with African-Americans. In front of a pub on Martin Luther King Drive, some black men stared at me while drinking their beer. It was probably quite unusual for them to see white people around there. At the same time, it was very unusual for me to see so many African-Americans all together: I could rarely see them in the richer parts of Chicago.

Later on I discovered that many black people settled in this area between 1910 and 1920 to escape from oppression in the southern States. At the beginning the area was flourishing, but it soon became overcrowded, as black people were impeded to buy houses outside of the “Black Belt”. The neighborhood turned into a very disreputable area, with high crime rate and poor living conditions.

After this occurrence I started thinking skeptically about the urban structure of Chicago. Little Italy, the Irish district, the Greek area, the Black neighborhood are just some examples of the many parts in which the metropolitan area of the city is fragmented. I was asking myself: do societies benefit from ethnic fractionalization? What are the economic and social consequences of urban segregation?

During the Development Economics course I attended at Bocconi University I discovered that many economists have been trying to create theoretical models and to analyze data to understand more in detail the causes and the implications of heterogeneous societies. I was also given the basic instruments to understand the large literature about this topic and I became familiar with measures of poverty, ethnic fractionalization and segregation.

There are many theories and predictions about this topic. Some researchers value ethnic fractionalization and claim that it generates growth, as various abilities and inputs can be combined together in the production function of the economy. Other authors suggest that the beneficial effect of ethnic heterogeneity is particularly strong in more advanced societies, where these various resources are efficiently combined together. Conversely, less developed societies could have difficulties in coordinating inputs of different ethnic groups. In many heterogeneous societies the amount of desired public good is lower compared to more homogeneous communities. Conflicting preferences over type and amount of public goods could explain this phenomenon. Alternatively, public good production could be easier in homogeneous societies whose members share common language and knowledge. At the same time in homogeneous communities it is easier to find and punish free riders. Furthermore, studies report a negative effect of ethnic segregation on the quality of government (measured considering accountability, stability, rule of law, control of corruption). In fact, segregation reduces contacts among different racial groups and consequently reduces trust across them.

To sum up, it seems that ethnic heterogeneity is beneficial when the resources brought by the different ethnic groups are efficiently shared and combined together, but detrimental to the quality of government when ethnic groups are strongly segregated and isolated.

It could be that cities like Chicago, with an advanced economy and fractionalized population, are not benefiting from the positive effects of ethnic heterogeneity due to its urban segregation. At the same time, racial segregation might have negative economic and social consequences on people living in segregated areas. In the United States, for instance, elementary and secondary education is largely financed by property tax. This means that poor neighborhoods can afford lower quality schools and teachers. Poor education translates into bad performance in the labor market and even more persistent economic and urban segregation. Could this vicious cycle be interrupted through a different financial support of schools? Could poverty decrease by designing urban plans that help removing the barriers to buy houses in areas with high quality public services? These and many other questions are still to be further analyzed.

What I learned from this visit to Bronzeville and even more after a field experience in Africa is that an attentive and curious observation of the real world is often at the basis of economic research. LEAP, the new poverty lab at Bocconi University, by promoting students’ research activity and collaborating with NGOs in Italy and abroad, tries to investigate on how to concretely alleviate poverty and reduce inequality. This way, research becomes compelling, effective and socially relevant.

Sara Spaziani

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