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Do Rent Seeking and Corruption Impede Economic Growth? Evidence from an Application to Bulgaria

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  • Gaitan, Beatriz
  • Pavel, Ferdinand
  • Roe, Terry

Abstract

The propose of this paper is to assess the social cost of "bad" governance and to compare these cots with welfare losses due to distortions of prices. We therefore present a general equilibrium model where producers of final goods finance a rent-seeking system by setting the price for intermediate products in an oligopsonist manner. This model is applied to the Bulgarian economy, in particular to the food chain where we find evidence of this type of market imperfection. From this application we find that as long as resources are allocated towards rent-seeking activities, there will be no significant welfare gains from free trade. Thus, we find "bad" governance to be a strong impediment to economic growth.

Suggested Citation

  • Gaitan, Beatriz & Pavel, Ferdinand & Roe, Terry, 2001. "Do Rent Seeking and Corruption Impede Economic Growth? Evidence from an Application to Bulgaria," Conference papers 330912, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:330912
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    3. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-481, August.
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