The purpose of this study is to investigate the effects of rent seeking on economic growth measured as Total Factor Productivity (TFP) in advanced and developing countries from 1985 to 2007. Although rent seeking is something that we know occurs, the research that has been devoted to it is rarely accurate and carefully described (Tullock, 2008:100). The theoretical foundation of this works lies in the 1982 work of Mancur Olson: The Rise and Decline of Nations and Tullock’s 1967 seminal paper The Welfare Cost of Tariffs, Monopolies and Theft. Olson (1982) describes the problem of “institutional sclerosis” caused by the accumulation over time in stable societies of special interest groups that reduce the efficiency of the economy in which they operate. Tullock (1967) described for the first time the effects of rent seeking on the economy. These two strains of the literature are usually discussed separately; however, the first part of this research shows that they can be reconciled. The variable that gave the most notable results in determining the effects of both rent seeking and institutional sclerosis on economic growth is the total number of trade associations. Since 1984 there has been mainly one source for this data: Saur’s World Guide to Trade Associations. This research uses the same source with an important difference: the count of trade associations for one of the editions used (i.e., 1985) is completely revised due to the identification of an issue with the data. The literature offers several approaches to the study of rent seeking. This thesis takes a macroeconomic approach, or “aggregate approach” (Del Rosal, 2011), as it does not aim at calculating the amount of resources wasted due to rent seeking activities but looks at the rent seeking consequences on the economy. In doing so it detaches itself from the literature in two ways. Firstly, it posits that the relationship between trade associations and growth is not linear but quadratic. Secondly, that trade associations do not act in a vacuum, therefore their effect should be interacted with the size of government. The research in the last two Chapters goes one step forward as, for the first time, a model looks at the effect of rent seeking at different levels of disaggregation of economic/industrial sectors. The findings show that the relationship between trade associations and growth is not linear (as most of the literature suggests) but is indeed quadratic. Therefore, suggesting that trade associations have a positive effect on growth which then turns negative. The relationship holds for different levels of development. Moreover, it shows that the effect of the number of trade associations on growth is conditional on government expenditure and that this effect differs depending on the level of development. The preliminary results in the two sectoral models show that some sectors have a stronger negative effect on growth compared to others, suggesting that this is the correct path to follow to understand the effect of trade associations on growth.

Controlled Access