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.