Ethnic inequality: theory and evidence from formal education in Nigeria

Abstract

Inequality across social groups with distinct identities and cultures is one of the most important issues facing modern societies. Disparities in economic opportunities, employment, earnings, and asset holding are generally perceived as symptoms of discrimination against the less well-off groups, which often leads to social animosities, riots, and violent conflicts (see, e.g., Sen 1973; Esteban and Ray 2011; Mitra and Ray 2014). In a perfectly competitive market economy, group inequality partly results from group differences in the level of human capital. A large body of literature has suggested that such differences are in part attributable to cultural factors (e.g., Ogbu 1978; Fordham and Ogbu 1986; Fordham 1996; Austen-Smith and Fryer 2005), with some groups adopting an oppositional attitude toward formal education, and others encouraging or pressuring their members into intensive community activities that leave little time for human capital acquisition. Given the grave social consequences of individual and group inequality, undertaking an analysis of the individual and group factors that influence the educational choice of individuals is important for informing the design of public policy. In this article, we analyze the implications of people organizing into culturally homogeneous groups that act as closed networks for individual and group inequality in human capital accumulation. The set of potential groups arises exogenously, but adherence to group values is endogenous. Education, through which human capital is built, is promoted by a secular state as a universal value. Each individual chooses how much time to invest in acquiring formal education (or human capital) and how much to invest in strengthening his relationship with his ethnic group (ethnic capital). We study the determinants of such a choice, focusing on the interplay of individual characteristics such as ability with group characteristics such as group size and ability. From our findings, we also identify a new mechanism through which social fragmentation affects human capital demand. We test the theoretical predictions using nationally representative household data from Nigeria, where ethnicity and religion are the primary identity cleavages.