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Lobbying on Entry

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Author Info

  • Enrico Perotti

    ()
    (University of Amsterdam, and CEPR)

  • Paolo Volpin

    (London Business School, and CEPR)

Abstract

We develop a model of endogenous lobby formation in which wealth inequalityand political accountability undermine entry and financial development. In-cumbents seek a low level of effective investor protection to prevent potentialentrants from raising capital. They succeed because they can promise largerpolitical contributions than the entrants due to the higher rents earned withless competition. Entry and investor protection improve when wealth distribu-tion becomes less unequal, and the political system becomes more accountable.Consistent with these predictions, in a cross-section of 38 countries we find that greater accountability is associated with higher entry in sectors that are more dependent on external capital and have greater growth opportunities. Also,higher accountability and lower income inequality are associated with more ef-fective legal enforcement, even after controlling for legal origin and per-capita income.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 04-088/2.

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Date of creation: 19 Aug 2004
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Handle: RePEc:dgr:uvatin:20040088

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Web page: http://www.tinbergen.nl

Related research

Keywords: Politics; Entry; Financial Development; Entrepreneurship; Investor protection; Income Inequality; Growth;

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  1. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
  2. Acemoglu, Daron, 2003. "Why not a political Coase theorem? Social conflict, commitment, and politics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 620-652, December.
  3. Simeon Djankov & Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "The Regulation Of Entry," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 1-37, February.
  4. Florencio Lopez-de-Silanes, 2002. "The Politics of Legal Reform," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  5. Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999. "Finance and the sources of growth," Policy Research Working Paper Series 2057, The World Bank.
  6. Sandra E. Black & Philip E. Strahan, 2002. "Entrepreneurship and Bank Credit Availability," Journal of Finance, American Finance Association, vol. 57(6), pages 2807-2833, December.
  7. Acemoglu, Daron & Zilibotti, Fabrizio & Aghion, Philippe, 2003. "Vertical Integration and Distance to Frontier," Scholarly Articles 4481512, Harvard University Department of Economics.
  8. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
  9. Acemoglu, Daron & Robinson, James A, 2002. "Economic Backwardness in Political Perspective," CEPR Discussion Papers 3261, C.E.P.R. Discussion Papers.
  10. Lu�s M B Cabral & Jos� Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
  11. Gradstein, Mark, 2004. "Inequality, Democracy and the Emergence of Institutions," CEPR Discussion Papers 4187, C.E.P.R. Discussion Papers.
  12. Bruno Biais & Enrico Perotti, 2002. "Machiavellian Privatization," American Economic Review, American Economic Association, vol. 92(1), pages 240-258, March.
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