Rent Seeking Opportunities and Economic Growth in Transitional Economies

This study empirically explores the growth effects of rent seeking activity (RSA) for a group of 52 developing/transitional countries, using a dynamic panel data approach. The modelling framework is a Mankiw-Romer-Weil (MRW) conditional convergence model augmented by measures of the opportunities for RSA, namely indices for the extent of democracy and corruption control. We find that health is more relevant than educational participation as a measure of human capital development in the MRW model. The overall empirical analysis shows that RSA retards economic growth, in that democratic institutions, which are inimical to RSA, are growth enhancing. We also find that reduction in the extent of corruption is only growth-enhancing if supported by well-developed democratic institutions.