Chapter 2 An economic study of ethnic heterogeneity and its implications for conflicts and peace

We can divide the humanity into 5,000 ethnic groups who reside in 160 distinct states in the world. On an average this implies that only one randomly picked state out of every 10 states is ethnically homogenous. In other words the borders between different ethnic groups do not accord with national borders. We, hence, live in a melting pot of ethnicity and most countries are ethnically heterogeneous. In an alternative fashion, we can make a statement about our ethnic diversity by making a simple observation that there are over 600 living language groups in 184 states in the world. There is thus a reason to believe that the human race confronts a serious and endemic ethnic diversity, which is also increasingly accompanied with unprecedented ethnic rivalry, competition, conflicts, violent clashes and all-out wars. Our chapter provides a comprehensive investigation into the economic causes and consequences of ethnic heterogeneity in our modern world. In order to understand the basic economics of ethnic diversity, we will focus our attention to what is commonly known as ‘global firms’ who employ people from diverse ethnic backgrounds. The consequences will be examined in the context of modern societies where the global firms play an important economic role.