Skip to main content
SpringerLink
Log in

The Relationship Between Ethnic Diversity and Stock Market Development: A Global Perspective

  • Conference paper
  • First Online:
Contemporary Trends and Challenges in Finance

Part of the book series: Springer Proceedings in Business and Economics ((SPBE))

Abstract

Diversity plays a crucial role in investor’s decision-making behaviour. If the culture of heterogeneity escalates, consumer choices also create catastrophic shifts in the financial markets. This study aims to investigate the relationship between diversity and stock market development by using the data of 187-countries of the world. The results indicate that diversity either ethnic or religious, or both have a significant positive association with stock market development (including market capitalization, market liquidity, turnover ratio, listed domestic companies, S&P/global equity index). This study suggests that diversity is a natural phenomenon; however, productive results of diversity can be obtained by providing an equal and peaceful society through cohesiveness.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 149.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 199.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 199.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

  • Alesina A, Ferrara EL (2005) Ethnic diversity and economic performance. J Econ Lit 43(3):762–800

    Article  Google Scholar 

  • Alesina A, Giuliano P (2015) Culture and institutions. J Econ Lit 53(4):898–944

    Article  Google Scholar 

  • Alesina A, Devleeschauwer A, Easterly W, Kurlat S, Wacziarg R (2003) Fractionalization. J Econ Growth 8(2):155–194

    Article  Google Scholar 

  • Antonio AL, Chang MJ, Hakuta K, Kenny DA, Levin S, Milem JF (2004) Effects of racial diversity on complex thinking in college students. Psychol Sci 15(8):507–510

    Article  Google Scholar 

  • Ashraf Q, Galor O (2011) Cultural diversity, geographical isolation, and the origin of the wealth of nations. National Bureau of Economic Research

    Google Scholar 

  • Baier SL, Bergstrand JH (2001) The growth of world trade: tariffs, transport costs, and income similarity. J Int Econ 53(1):1–27

    Article  Google Scholar 

  • Baltagi BH, Song SH, Koh W (2003) Testing panel data regression models with spatial error correlation. J Econ 117(1):123–150

    Article  Google Scholar 

  • Bolgorian M (2011) Corruption and stock market development: a quantitative approach. Physica A Stat Mech Appl 390(23–24):4514–4521

    Article  Google Scholar 

  • Bond P, Edmans A, Goldstein I (2012) The real effects of financial markets. Annu Rev Financ Econ 4(1):339–360

    Article  Google Scholar 

  • Bove V, Elia L (2017) Migration, diversity, and economic growth. World Dev 89:227–239

    Article  Google Scholar 

  • Breuer W, Riesener M, Salzmann AJ (2014) Risk aversion vs. individualism: what drives risk taking in household finance? Eur J Financ 20(5):446–462

    Article  Google Scholar 

  • Brown R (2000) Social identity theory: past achievements, current problems and future challenges. Eur J Soc Psychol 30(6):745–778

    Article  Google Scholar 

  • Cherif M, Gazdar K (2010) Macroeconomic and institutional determinants of stock market development in MENA region: new results from a panel data analysis. Int J Bank Financ 7(1):8

    Google Scholar 

  • Chinn MD, Ito H (2006) What matters for financial development? Capital controls, institutions, and interactions. J Dev Econ 81(1):163–192

    Article  Google Scholar 

  • Chui AC, Titman S, Wei KJ (2010) Individualism and momentum around the world. J Financ 65(1):361–392

    Article  Google Scholar 

  • Collier P (1998) The political economy of ethnicity. World Bank, Washington, DC

    Google Scholar 

  • Collier P, Elbadawi I, Sambanis N (2000) How much war will we see? Estimating the likelihood and amount of war in 161 countries, 1960-1998. The World Bank (January), Unpublished mimeo

    Google Scholar 

  • DiTomaso N, Post C, Parks-Yancy R (2007) Workforce diversity and inequality: power, status, and numbers. Annu Rev Sociol 33:473–501

    Article  Google Scholar 

  • Dutta N, Mukherjee D (2012) Is culture a determinant of financial development? Appl Econ Lett 19(6):585–590

    Article  Google Scholar 

  • Dutta N, Mukherjee D (2015) Cultural traits and stock market development: an empirical analysis. J Entrepreneurship Public Policy 4(1):33–49

    Article  Google Scholar 

  • Egger PH, Von Ehrlich M, Nelson DR (2012) Migration and trade. World Econ 35(2):216–241

    Article  Google Scholar 

  • Elbadawi E, Sambanis N (2000) Why are there so many civil wars in Africa? Understanding and preventing violent conflict. J Afr Econ 9(3):244–269

    Article  Google Scholar 

  • Florida R (2002) The economic geography of talent. Ann Assoc Am Geogr 92(4):743–755

    Article  Google Scholar 

  • Forti CAB, Yen-Tsang C, Peixoto FM (2011) Stock market development: an analysis from a multilevel and multi-country perspective. BAR-Brazilian Admin Rev 8(4):351–375

    Article  Google Scholar 

  • Frame WS, White LJ (2004) Empirical studies of financial innovation: lots of talk, little action? J Econ Lit 42(1):116–144

    Article  Google Scholar 

  • Gozzi JC, Levine R, Schmukler SL (2008) Internationalization and the evolution of corporate valuation. J Financ Econ 88(3):607–632

    Article  Google Scholar 

  • Guiso L, Sapienza P, Zingales L (2006) Does culture affect economic outcomes? J Econ Perspect 20(2):23–48

    Article  Google Scholar 

  • Hall RE (2001) The stock market and capital accumulation. Am Econ Rev 91(5):1185–1202

    Article  Google Scholar 

  • Hayek FA (1945) The use of knowledge in society. Am Econ Rev 35(4):519–530

    Google Scholar 

  • Head K, Ries J (1998) Immigration and trade creation: econometric evidence from Canada. Can J Econ:47–62

    Google Scholar 

  • Herbig P, Dunphy S (1998) Culture and innovation. Cross Cult Manag 5(4):13–21

    Article  Google Scholar 

  • Herring C (2009) Does diversity pay?: Race, gender, and the business case for diversity. Am Sociol Rev 74(2):208–224

    Article  Google Scholar 

  • Hogg MA (2007) Uncertainty–identity theory. Adv Exp Soc Psychol 39:69–126

    Article  Google Scholar 

  • Hsiao C (1986) Analysis of panel data, Econometric Society Monograph No. 11. Cambridge University Press, Cambridge

    Google Scholar 

  • Jain A, Jordan C (2009) Diversity and resilience: lessons from the financial crisis. UNSWLJ 32:416

    Google Scholar 

  • Kabeer N, Natali L (2013) Gender equality and economic growth: is there a win-win? IDS Working Papers 2013(417):1–58

    Article  Google Scholar 

  • Kahneman D (2003) A perspective on judgment and choice: mapping bounded rationality. Am Psychol 58(9):697

    Article  Google Scholar 

  • Kwok CC, Tadesse S (2006) National culture and financial systems. J Int Bus Stud 37(2):227–247

    Article  Google Scholar 

  • Levine R, Zervos S (1998) Stock markets, banks, and economic growth. Am Econ Rev:537–558

    Google Scholar 

  • Masoud NM (2013) The impact of stock market performance upon economic growth. Int J Econ Financ Issues 3(4):788

    Google Scholar 

  • Miller DJ (2006) Technological diversity, related diversification, and firm performance. Strateg Manag J 27(7):601–619

    Article  Google Scholar 

  • Montalvo JG, Reynal-Querol M (2005) Ethnic diversity and economic development. J Dev Econ 76(2):293–323

    Article  Google Scholar 

  • Mouselli S, Aljazaerli MA, Sirop R (2016) Corruption and stoCK marKet development: neW evidenCe from gCC Countries. Bus Theory Pract 17:117

    Article  Google Scholar 

  • Nettle D, Grace JB, Choisy M, Cornell HV, Guégan J-F, Hochberg ME (2007) Cultural diversity, economic development and societal instability. PLoS One 2(9):e929

    Article  Google Scholar 

  • North DC (1991) Institutions. J Econ Perspect 5(1):97–112

    Article  Google Scholar 

  • Pan L, Mishra V (2018) Stock market development and economic growth: empirical evidence from China. Econ Model 68:661–673

    Article  Google Scholar 

  • Patrick HT (1966) Financial development and economic growth in underdeveloped countries. Econ Dev Cult Chang 14(2):174–189

    Article  Google Scholar 

  • Pettigrew TF, Tropp LR, Wagner U, Christ O (2011) Recent advances in intergroup contact theory. Int J Intercult Relat 35(3):271–280

    Article  Google Scholar 

  • Putnam RD (2007) E pluribus unum: Diversity and community in the twenty-first century the 2006 Johan Skytte Prize Lecture. Scand Polit Stud 30(2):137–174

    Article  Google Scholar 

  • Richard OC (2000) Racial diversity, business strategy, and firm performance: a resource-based view. Acad Manag J 43(2):164–177

    Article  Google Scholar 

  • Roberson QM, Park HJ (2007) Examining the link between diversity and firm performance: the effects of diversity reputation and leader racial diversity. Group Org Manag 32(5):548–568

    Article  Google Scholar 

  • Rousseau PL, Wachtel P (2000) Equity markets and growth: cross-country evidence on timing and outcomes, 1980–1995. J Bank Financ 24(12):1933–1957

    Article  Google Scholar 

  • Sacasa N (2008) Preventing future crises. Financ Dev 45(4):11–14

    Google Scholar 

  • Shahbaz M, Hye QMA, Shabbir MS (2013) Does corruption increase financial development? A time series analysis in Pakistan. Int J Econ Empirical Res 1(10):113–124

    Google Scholar 

  • Sommers SR (2006) On racial diversity and group decision making: identifying multiple effects of racial composition on jury deliberations. J Pers Soc Psychol 90(4):597

    Article  Google Scholar 

  • Sommers SR, Warp LS, Mahoney CC (2008) Cognitive effects of racial diversity: white individuals’ information processing in heterogeneous groups. J Exp Soc Psychol 44(4):1129–1136

    Article  Google Scholar 

  • Stulz RM, Williamson R (2003) Culture, openness, and finance. J Financ Econ 70(3):313–349

    Article  Google Scholar 

  • Tang Z, Liu Q, Li Z (2016) Cultural diversity and stock market prosperity

    Google Scholar 

  • Taydas Z, Peksen D, James P (2010) Why do civil wars occur? Understanding the importance of institutional quality. Civil Wars 12(3):195–217

    Article  Google Scholar 

  • Van Knippenberg D, Schippers MC (2007) Work group diversity. Annu Rev Psychol 58:515–541

    Article  Google Scholar 

  • Verick S, Islam I (2010) The great recession of 2008–2009: causes, consequences and policy responses

    Google Scholar 

  • Watkins A, Ferrara EL (2005) Ethnic diversity and economic performance. J Econ Lit 43(3):762–800

    Article  Google Scholar 

  • Weller CE, Zulfiqar G (2013) Financial market diversity and macroeconomic stability. Political Economy Research Institute Working Paper 332

    Google Scholar 

  • Williams KY, O’Reilly CA III (1998) Demography and diversity in organizations. Res Organ Behav 20:77–140

    Google Scholar 

  • World Bank (2000) World development report 2000/2001: attacking poverty. The World Bank, Oxford University Press, New York

    Google Scholar 

  • Yanikkaya H (2003) Trade openness and economic growth: a cross-country empirical investigation. J Dev Econ 72(1):57–89

    Article  Google Scholar 

  • Yartey CA (2010) The institutional and macroeconomic determinants of stock market development in emerging economies. Appl Financ Econ 20(21):1615–1625

    Article  Google Scholar 

  • Zulfiqar GM, Weller C (2013) Financial market diversity and macroeconomic stability

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics, National College of Business Administration and Economics, Lahore, Pakistan

    Saqib Amin

  2. Department of Financial Investments and Risk Management, Wroclaw University of Economics and Business, Wroclaw, Poland

    Saqib Amin

Authors
  1. Saqib Amin
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Department of Financial Investments and Risk Management, Wroclaw University of Economics & Business, Wroclaw, Poland

    Krzysztof Jajuga

  2. Fakultät Wirtschaftswissenschaften, TU Dresden, Dresden, Sachsen, Germany

    Hermann Locarek-Junge

  3. Department of Economics and Finance, Sacred Heart University, Fairfield, CT, USA

    Lucjan T. Orlowski

  4. Department of Economics & Finance, Tallinn University of Technology, Tallinn, Estonia

    Karsten Staehr

Appendices

Appendix 1: Construction of the Fractionalization Index

  1. 1.

    Approach. This paper used ethnic fractionalization index, developed by the Alesina et al. (2003) for diversity calculation (on the basis of ethnic and religious) using the following formula.

    $$ {\mathrm{FRAC}}_{\mathrm{j}}=1-\sum \limits_{\mathrm{i}=1}^{\mathrm{N}}{\mathrm{S}}_{\mathrm{i}\mathrm{j}}^2 $$

  • Whereas, Sij is the share of group i, (i = 1,…,N) in the country j. The range of the fractionalization index is between 0 and 1. Zero “0” means homogenous country and “1” shows total heterogeneous country.

  1. 2.

    Data. The data of diversity (ethnic and religious) has been taken from database of Cline Centre for Democracy, University of Illinois, USA. The dataset contain annual data from 1990 to 2010 for 187-countries. Data at the Cline Centre based on various projects that document the changing varieties of social identity around the world (composition of religious and ethnic groups, CREG). In addition, they also identified the causes of conflict between religious and ethnic groups. The Composition of Religious and Ethnic Groups Project (CREG) has started to create a set of time-varying measures that gauge the nature and depth of country-specific socio-cultural cleavages. It focused on the largest countries in the world (all countries with a population above 500,000 (in 2014) during the post-WWII era to create country-specific projections on the relative sizes of the different groups during the post-war era.

  1. 3.

    Final index. The data at CREG project shows various types of groups each and every country at annual basis on the ethnic and religious identity. We have found the number of ethnic and religious groups of each country out of total populations. Therefore, it easy to apply the Alesina’s fractionalization index formula to calculate the diversity for ethnic and religious basis. We constructed the index values for the year 1990, 1995, 2000, 2005 and 2010 because diversity is not change over time. We have also compiled the index for 187-countries (out of 195 totals) due to limitation of data. The result of index can be used for relative ranking of countries on basis of ethnic and religious identity in current scenarios. (Please see results at Appendix 3).

Appendix 2: Summary Statistics

Descriptive statistics

 

VSTG

VSTM

MC

DC

GEI

FRACED

FRACRD

IC

IST

GE

FDI

GDPPC

CI

Mean

34.02

48.77

65.49

498.3

5.159

0.457

0.400

0.599

0.499

0.698

5.151

1285

42.82

Median

8.713

26.22

36.39

158.0

3.789

0.455

0.423

0.606

0.521

0.706

2.687

6631

34.50

Maximum

668.5

1721

1185

7487

158.0

0.989

0.925

0.788

0.773

1.021

341.0

1277

98.14

Minimum

0.000

0.015

0.010

2.000

−61.04

0.013

0.003

−0.031

0.231

0.211

−16.58

257.7

8.400

Std. Dev.

71.31

113.0

104.5

1049

28.97

0.258

0.218

0.100

0.100

0.100

14.76

1632

22.17

Skewness

5.117

11.21

6.942

3.839

1.153

−0.037

−0.130

−0.921

−0.414

−0.171

15.41

2.547

0.934

Kurtosis

38.72

160.4

66.62

19.16

6.617

1.696

1.746

5.936

2.874

4.537

325.5

11.66

2.696

Jarque-Bera

1985

3204

5654

5004

252.2

51.53

51.83

291.9

15.44

87.89

3714

3678

93.79

Probability

0.000

0.000

0.000

0.000

0.000

0.000

0.000

0.000

0.000

0.000

0.000

0.000

0.000

Sum

1173

1482

2095

1868

1697

331.9

304.0

349.7

263.6

593.5

4373

1123

2689

Sum sq. dev.

1749

3871

3486

4.124

2753

48.35

36.24

5.839

5.320

8.592

1847

2.334

3081

The above Appendix 2 shows the descriptive statistics of dependent and independents variables. VSTG, VSTM, MC, Dc and GEI have a maximum values such as 668.5, 1721, 1185, 7487 and 158 and minimum values 0.00, 0.015, 0.010, 2.00 and −61.04 respectively. Maximum values of FRACED and FRACRD are 0.98 and 0.92 and minima are 0.01 and 0.03 respectively. In the line of empirical analysis, Table 1 shows that data is well organized respective to dependent and independent variables.

Appendix 3: List of Countries

Andorra

Ireland

Qatar

Samoa

Eritrea

Antigua and Barbuda

Israel

San Marino

Sao and Principe

Ethiopia

Australia

Italy

Saudi Arabia

Serbia and Monten.

Gambia, The

Austria

Japan

Seychelles

Solomon Islands

Guinea

Bahamas, The

Kuwait

Singapore

South Africa

Guinea-Bissau

Bahrain

Latvia

Slovak Rep.

Sri Lanka

Haiti

Barbados

Liechtenstein

Slovenia

St. Lucia

Zimbabwe

Belgium

Lithuania

Spain

Sudan

Senegal

Brunei Darussalam

Luxembourg

Sweden

Afghanistan

Sierra Leone

Canada

Malta

HK, China

Benin

Somalia

Chile

Monaco

Hungary

Burkina Faso

Tanzania

Cyprus

Netherlands

Iceland

Burundi

Togo

Czech Republic

New Caledonia

Switzerland

Central African Rep.

Uganda

Denmark

New Zealand

Trinidad & Tob.

Chad

Rwanda

Estonia

Norway

UAE

Comoros

Liberia

Finland

Oman

UK

Congo, Dem. Rep.

Madagascar

France

Palau

United States

Nepal

Malawi

Germany

Poland

Uruguay

Niger

Mali

Greece

Portugal

Fiji

Kiribati

Mozambique

Albania

Cameroon

Gabon

Kyrgyz Republic

Pakistan

Algeria

Cape Verde

Georgia

Lao PDR

Panama

Angola

China

Ghana

Lebanon

Pap. New Guinea

Argentina

Colombia

Grenada

Lesotho

 

Armenia

Congo, Rep.

Guatemala

Libya

 

Azerbaijan

Costa Rica

Guyana

Macedonia, FYR

 

Bangladesh

Cote d’Ivoire

Honduras

Malaysia

 

Belarus

Croatia

India

Maldives

 

Belize

Cuba

Indonesia

Marshall Islands

 

Bhutan

Djibouti

Iran, Rep.

Mauritania

 

Bolivia

Dominica

Iraq

Mauritius

 

Bosnia and Herz

Dominican Rep.

Jamaica

Mexico

 

Botswana

Ecuador

Jordan

Micronesia, Fed. Sts.

 

Brazil

Egypt, Arab Rep.

Kazakhstan

Moldova

 

Bulgaria

El Salvador

Kenya

Mongolia

 

Cambodia

Equatorial Guinea

Timor-Leste

Turkey

 

Suriname

Taiwan, China

Tonga

Turkmenistan

 

Swaziland

Tajikistan

Tunisia

Ukraine

 

Syrian Arab Republic

Thailand

Vanuatu

Uzbekistan

 

Venezuela, RB

Yemen, Rep.

Morocco

Paraguay

 

Vietnam

Zambia

Namibia

Peru

 

Nicaragua

Philippines

Russia

  

Rights and permissions

Reprints and permissions

Copyright information

© 2021 The Author(s), under exclusive license to Springer Nature Switzerland AG

About this paper

Check for updates. Verify currency and authenticity via CrossMark

Cite this paper

Amin, S. (2021). The Relationship Between Ethnic Diversity and Stock Market Development: A Global Perspective. In: Jajuga, K., Locarek-Junge, H., Orlowski, L.T., Staehr, K. (eds) Contemporary Trends and Challenges in Finance . Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-73667-5_1

Download citation

Publish with us

Policies and ethics

Search

Navigation