Political Identity and Economic Behavior: How Does Minority Status Affect Savings and Investment

This project aims to explore how political identity affects economic behavior in divided societies. We hypothesize that identification with political minority leads to the preferences for consumption instead of saving and investment due to the lack of trust in government institutions, represented by “another” ethnic group, short time horizon from political uncertainty and intra-communal norms against the business activity with “others”. In turn it leads to horizontal inequality in the long run. We also assume that segregation enforces this relationship and mixed settlement mitigates it. To test these ideas we are analyzing data from UNDP survey, that spans 10 years, and additional surveys and behavior experiments in 30 pairs of the matched villages from two sides of the Inter-Entity Boundary Line (IELB) – a boundary between two parts of Bosnia and Herzegovina: the Federation of the Bosnia and Herzegovina and Republika Srspka, that was imposed by Dayton agreement and almost arbitrary left some ethnic communities as majorities and some as minorities.