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Competitive Rent Preservation, Reform Paralysis, and the Persistence of Underdevelopment

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  • Raghuram G. Rajan

Abstract

Initial inequality in endowments and opportunities, together with low average levels of endowments, can create constituencies in a society that combine to paralyze reforms, even though the status quo hurts them collectively. Each constituency prefers reforms that expand its opportunities, but in an unequal society, this will typically hurt another constituency’s rents. Competitive rent preservation ensures no comprehensive reform path may command broad support. Though the initial conditions may well be a legacy of the colonial past, persistence does not require the presence of coercive political institutions, perhaps one reason why underdevelopment has survived independence and democratization. Instead, the roots of underdevelopment may lie in the natural tendency towards rent preservation in a divided society.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12093.

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Date of creation: Mar 2006
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Handle: RePEc:nbr:nberwo:12093

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Cited by:
  1. Francisco Gallego, 2008. "Historical Origins of Schooling: The Role of Democracy and Political Decentralization," Working Papers ClioLab 7, EH Clio Lab. Instituto de Economía. Pontificia Universidad Católica de Chile.
  2. Simon Johnson & Jonathan D. Ostry & Arvind Subramanian, 2007. "The Prospects for Sustained Growth in Africa: Benchmarking the Constraints," NBER Working Papers 13120, National Bureau of Economic Research, Inc.
  3. Danne, Christian, 2009. "Commitment devices, opportunity windows, and institution building in Central Asia," MPRA Paper 16597, University Library of Munich, Germany.
  4. Andrew Berg & Jonathan D. Ostry & Jeromin Zettelmeyer, 2011. "What makes growth sustained?," Working Papers 133, European Bank for Reconstruction and Development, Office of the Chief Economist.
  5. M. Idrees Khawaja & Sajawal Khan, 2009. "Reforming Institutions: Where to Begin?," PIDE-Working Papers 2009:50, Pakistan Institute of Development Economics.
  6. Armour, John & Deakin, Simon & Sarkar, Prabirjit & Siems, Mathias & Singh, Ajit, 2007. "Shareholder protection and stockmarket development: an empirical test of the legal origins hypothesis," MPRA Paper 39055, University Library of Munich, Germany.
  7. Singh, Nirvikar, 2007. "The Dynamics of Reform of India’s Federal System," MPRA Paper 2282, University Library of Munich, Germany.
  8. Stevens, Paul & Dietsche, Evelyn, 2008. "Resource curse: An analysis of causes, experiences and possible ways forward," Energy Policy, Elsevier, vol. 36(1), pages 56-65, January.

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