A common political economic problem in emerging markets is ethnic cleavages and tensions. Unlike most studies assuming ethnic identities are given, this paper explores how the historical process of nation-building redefines the ethnic boundaries and reweighs ethnic identities. We claim that the nation-building process affects an individual’s ingroup and outgroup trust, cooperative behaviors, and thus economic outcomes by affecting the salience of ethnic identity, as opposed to national identity. Using historical events around natural boundaries of four districts in Lijiang Prefecture in Yunnan, China, we plan to conduct behavioral experiments examining how the nation-building attempts by the Qing Dynasty and by the CCP, along with the ethnic minority autonomy policy, have shaped the salience of indigenous Naxi ethnicity across counties in this region. Our study will provide insights not only for the developmental struggles of ethnic minority areas in China but also to ethnically diverse countries in emerging markets.
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