The Impact of Rent Seeking on Social Infrastructure and Productivity

Abstract

I develop a neoclassical growth model in which rent seeking impacts negatively on productivity and welfare because it discourages the accumulation of social infrastructure. I estimates the fraction of resources wasted in rent seeking for a sample of 149 countries. On average, countries in the first (resp. last) decile of the distribution of the estimated rent-seeking intensity devote, on average, around 25% (resp. 38%) of output to rent-seeking and have 88% (resp. 80%) of output per capita and 58% (resp. 38%) of consumption per capita of a country without rent seeking. Moreover, around one quarter of the drop in consumption per capita caused by rent seeking is due to its negative impact on the accumulation of social infrastructure and the remaining three quarters are due to the waste of resources.