MACROECONOMIC IMPLICATIONS OF INCREASING DIVERSITY OF POPULATION: THE ETHNIC, LINGUISTIC, AND RELIGIOUS FRAGMENTATION OF THE POPULATION IN THE EU IN THE PAST TWO DECADES

The paper focuses on the relationship between population diversity and macroeconomic outcomes. The econometric analysis using fixed and random effect panel data models was conducted in 27 European Union countries in 2000-2023. Changes in the population´s diversity are measured using the decreasing transformation of the Herfindahl-Hirsch Index to express the ethnic, linguistic, and religious fragmentation of the population. To capture the overall effect of the changes in the diversity of the population in the European Union, the composite index based on principal component analysis is constructed. The first component with the highest eigenvalue is a regressor of selected macroeconomic outcomes – economic growth, public debt, and income disparities. Besides, the other public policy outcome - political instability, which affects the macroeconomic outcomes, is also considered. As expected, the increasing diversity of the population is observed. It has a statistically significant positive relationship with public debt, income disparities, and political instability, while in negative with economic growth.