The absence of social cohesion, however, may lead to allocatively suboptimal outcomes, as a result of social institutions such as group-based discrimination or exclusion. For example, where economic actors refuse to engage in economic transactions with other agents of different ethnic, religious, caste or other identifying groups, then both allocative and productive efficiency will not be attained: if employers refuse to hire qualified members of minority groups based on non-salient attributes such as their social background, a welfare loss will occur to both parties, and a productive loss to the economy as a whole. Similarly, if members of minority groups are prevented from gaining equal access to education, or their communities to vital infrastructure such as transport and communication, then these members will not be able to attain their full human and productive potential, leading to an economic loss for the economy as a whole. While studies that have attempted to estimate the economic losses arising from norms of discrimination encounter obvious accounting problems and are subject to a wide margin of error, all such studies attempted agree that the costs are substantial (Patrinos 2004, Lundahl, M. 1992, Birdsall and Sabot 1991).
Explain the role of institutions on economic growth