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Among the determinants of economic freedom, the presence of different ethnic groups within a country has sometimes been explored by the empirical literature, without conclusive evidence on the sign of the relation, its drivers, and the conditions under which it holds. This paper offers new evidence by empirically modelling how ethnic fragmentation is related to economic freedom, as measured by the Economic Freedom Index and by each of its numerous areas, components and sub-components. The results provide insights on the components driving the effect and, interestingly, detect notable differences between developed and developing countries.

New evidence on the link between ethnic fractionalization and economic freedom