The political economy of intergroup contact: evidence from Malaysia

Are there particular social structures that allow ethnic diversity to coexist with political stability and economic development? This paper examines the long-run effects of interethnic proximity using quasi-random variation from a colonial-era program that forcibly relocated over 500,000 ethnic minority Chinese into mono-ethnic villages across Malaysia. Ethnic majority Malays residing closer to these villages exhibit lower electoral support for the ethnonationalist coalition, potentially reflecting a moderation of political identity. We observe moderately positive impacts on local economic development. Political effects are stronger in regions with initial, historical interethnic complementarities—even without persistent economic prosperity. Malays report greater contact with Chinese, higher interethnic trust, and weaker zero-sum beliefs. Effects are stronger (reversed) in areas with interethnic complementarities (competition). Throughout, effects on social integration remain muted. These findings suggest that the nature of the underlying economic relationship can have a persistently important role in shaping the long-run effects of contact.