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Democracy, rent seeking, public spending and growth

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  • Mohtadi, Hamid
  • Roe, Terry L.

Abstract

Does democratization imply faster growth, less corruption and less inefficiency? Past studies yield ambiguous results on the effects of democracy on economic performance and growth. We develop a simple two-sector endogenous growth model that shows both very young and mature democracies grow faster than countries in mid stages of democratization, producing a 'U' effect. This effect results from the pattern of rent seeking as it diverts from the provision of public goods. Rent-seekers act as monopolistic competitors. Initially, more democracy increases their number, raising aggregate rents. However, rents per rent-seeker fall with the number of rent seekers, aggregate rents fall in mature democracies. Thus, rents show an 'inverted-U' effects in relation to democracy. We find fairly robust supportive evidence for the latter.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 87 (2003)
Issue (Month): 3-4 (March)
Pages: 445-466

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Handle: RePEc:eee:pubeco:v:87:y:2003:i:3-4:p:445-466

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Web page: http://www.elsevier.com/locate/inca/505578

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References

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  1. Rama, Martin, 1993. "Rent seeking and economic growth : A theoretical model and some empirical evidence," Journal of Development Economics, Elsevier, vol. 42(1), pages 35-50, October.
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  18. John F. Helliwell, 1994. "Empirical Linkages Between Democracy and Economic Growth," NBER Working Papers 4066, National Bureau of Economic Research, Inc.
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