The resultant ethnic fragmentation often leads to conflict caused by competition for resources amongst ethnic groups, which dooms former colonies to ethnic strife. The impact of this ethnic fragmentation on social and economic development can be explored through the lens of New Institutional Economics (NIE). As noted, natural nations have a built-in advantage in attaining national cohesion and social and economic development. Nations not characterized by ethnic homogeneity must overcome ethnic strife by adopting institutional innovations to attain national cohesion. In constructed nations rife with poverty, political entrepreneurs can exploit ethnic cleavages and exacerbate political instability, thereby undermining social and economic development.
