THE DISTRIBUTION OF POLITICAL POWER, THE COSTS OF RENT-SEEKING, AND ECONOMIC GROWTH

Poor economic growth in many countries can be explained by the misallocation of entrepreneurial resources to activities that do not foster growth. This paper deals with the relation between the distribution of political power, the allocation of entrepreneurial resources and growth. We model growth as deriving from Schumpeterian entrepreneurs who try to increase profits through innovation. We endogenize the choice of time devoted to this activity vis-a-vis other ways of increasing income, such as obtaining government subsidies. More unequal access to the political redistribution mechanism makes rent-seeking activities less profitable, and results in higher growth.