Democracy, rent seeking, public spending and growth

Hamid Mohtadi, Terry L. Roe

Research output: Contribution to journalArticlepeer-review

68 Scopus citations

Abstract

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. Due to this crowding effect and the increased competition among rent seekers, aggregate rents fall in mature democracies. Thus, rents show an 'inverted-U' effect in relation to democracy. We find fairly robust supportive evidence for the latter.

Original languageEnglish (US)
Pages (from-to)445-466
Number of pages22
JournalJournal of Public Economics
Volume87
Issue number3-4
DOIs
StatePublished - Mar 1 2003

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