DP2001 Voracity and Growth

Author(s): Philip R. Lane, Aaron Tornell
Publication Date: October 1998
Keyword(s): Differential Games, Economic Growth, Natural Resources, Terms of Trade, voracity
JEL(s): F43, O10, O23, O40
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2001

We analyse an economy that lacks a strong legal-political institutional infrastructure and is populated by multiple powerful groups. Powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock. In equilibrium, this leads to slow economic growth and a 'voracity effect', by which a shock, such as a terms of trade windfall, perversely generates a more than proportionate increase in fiscal redistribution and reduces growth. We also show that a dilution in the concentration of power leads to faster growth and a less pro-cyclical response to shocks.