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

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Raghuram G. Rajan

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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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O1 - Economic Development, Technological Change, and Growth - - Economic Development
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
P5 - Economic Systems - - Comparative Economic Systems
I2 - Health, Education, and Welfare - - Education
K0 - Law and Economics - - General

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  1. 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. [Downloadable!] (restricted)
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