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Democracy, rent seeking, public spending and growth

  • Mohtadi, Hamid
  • Roe, Terry L.

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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