- Interest Groups and the ‘Rise and Decline’ of Growth
Southern Economic Journal forthcoming
Abstract. Interest groups are known to exert a sclerotic impact on mean growth, á la Mancur Olson (1982). It is unknown, however, what (if any) impact groups exert on the volatility of growth - an important hindrance to development. In this paper, we first consider what impact we should expect Olson groups to have on the volatility of growth. We then estimate the relation between groups and growth volatility in a cross-country panel, using System GMM. The findings indicate that groups are associated with growth stability. In addition, the findings suggest that interest groups may be a source of the stability observed in democracies.
Economics & Politics 25: 360-386, 2013
Abstract. We investigate whether the impact of institutions depends not just on their current state, but also on how they came to be. In particular, we hypothesize that while economic freedom that emerges spontaneously may be growth promoting, economic freedom that emerges as a result of costly lobbying efforts may be less fruitful. In an extreme case, costly lobbying efforts may even negate the growth-enhancing effect of economic freedom. To the extent that lobbying efforts constitute an opportunity cost of resources diverted away from investment and production, our hypothesis also implies that the opportunity cost of lobbying is greater the more efficient is the institutional environment. Panel data analysis reveals the expected positive relation between economic freedom and growth, and consistent with our hypothesis, the findings indicate that the impact of economic freedom on growth does indeed diminish as lobbying efforts increase. In addition, we find that lobbying is more harmful to growth at greater levels of economic freedom.
Public Choice 147: 439-457, 2011
Abstract. This paper empirically explores the relation between special-interest groups and economic growth. Our analysis exploits newly assembled data on the number of groups observed across countries and time, in order to mitigate the identification problems associated with earlier studies. Also in contrast to earlier work, we examine the impact of groups on two sources of growth - capital accumulation and technological change - in addition to the impact of groups on output growth. The findings are consistent with Mancur Olson's (1982) claim that societies with greater numbers of interest groups grow slower, accumulate less capital, and experience reduced productivity growth relative to others.
European Journal of Political Economy 26: 208-221, 2010
Abstract. We investigate the relationship between interest group activity and investment by analyzing an unbalanced panel of observations on 126 countries over three time-periods. We find that the number of interest groups in a nation is negatively related to investment, consistent with a sclerotic effect due to rent-seeking by interest groups. Our findings are robust to the inclusion of a variety of additional common controls in the specification, to potential outlying observations, and to varied sample selection procedures. We do find, however, that the sclerotic impact of groups on investment is stronger across developed OECD countries than for the developing non-OECD countries. Effects also tend to be stronger in democratic nations, but are dependent upon how strict a definition of democracy is used.
Public Choice 133: 377-391, 2007
Abstract. It is widely recognized that interest groups affect both microeconomic and macroeconomic outcomes. However, few researchers have attempted to discern empirically the factors that contribute to interest group activity. This paper provides a test of several theories of group formation in a panel setting. A nation's stability, socioeconomic development, political system, size, and diversity all appear to contribute to interest group formation as predicted by theory.
Economics Bulletin Vol 15, No 18: 1-13, 2007
Abstract. This paper explores the relationship between special-interest groups and volatility of GDP growth. In an unbalanced panel of 108 countries, we find a significant negative relationship between the number of interest groups in a country and the volatility of GDP growth.
Southern Economic Journal 74: 18-33, 2007
Abstract. In the quarter-century since the publication of Rise and Decline of Nations, a large literature has evolved testing the central hypothesis regarding Olson’s thesis on institutional sclerosis. These tests have taken the form of both econometric regression analysis involving a sample of various nations and detailed narrative case studies of specific nations. Tests have appeared in both economics and political science journals, as well as in collected volumes and independent books, performed primarily by authors from America and Europe. A review of over 50 separate works reveals that on the whole the theory of institutional sclerosis is generally, but certainly not universally, supported. No systematic bias in favor or opposition to Olson is found to have arisen based on methodology, publication outlet or authorship location.
Public Choice 117: 333-340, 2003
Abstract. Mancur Olson's institutional sclerosis hypothesis may be evident in the effects of interest groups on investment in physical capital. To test this proposition, we use cross sectional data on 42 countries for which information on the number of interest groups is available to estimate the effect of those groups on the share of GDP that goes into physical investment. The results indicate that interest groups have a different effect on physical investment in OECD and non-OECD countries. In the OECD countries, we find support for the hypothesis that interest groups harm investment in physical capital. In developing countries, interest groups either have no effect on physical investment or they have a slight beneficial impact.
On the Shoulders of a Giant: The Legacy of Mancur Olson
Collective Choice: Essays in Honor of Mancur Olson (Jac C. Heckelman and Dennis Coates(eds.)), Springer-Verlag, pp. 1-13, 2003
Abstract. The introductory chapter to the volume Collective Choice: Essays in Honor of Mancur Olson. This chapter covers the evolution of Olsonian thought: collective action; institutional sclerosis; market-augmenting government; compares Olson to the Virginia and Chicago schools of political economy, and summarizes the other chapters and places them into context.
Absolute and Relative Effects of Interest Groups on the Economy
Collective Choice: Essays in Honor of Mancur Olson (Jac C. Heckelman and Dennis Coates(eds.)), Springer-Verlag, pp. 129-142, 2003
Abstract. We test for the impact of interest groups on economic growth among the OECD nations. We find more evidence of an absolute effect from the number of groups than a relative effect of the number of groups compared to the size of government. The effects are non-linear, as additional group formation is less harmful the more groups that already exist, although total growth would still be hampered by their presence. When controlling for the absolute number of groups, the relative measure has no additional impact, but controlling for the relative measure increases the estimated average effect of the absolute number of groups. In addition, the negative influence of a given number of interest groups on growth is lessened over time.
Public Choice 104: 319-327, 2000
Abstract. Empirical studies designed to test Olson's (1982) theory of institutional sclerosis are typically forced to rely upon proxies to measure the ability of special interest groups to engage in redistributive activities, which in turn are expected to hinder economic growth. This note shows that reliance on proxies biases the estimates toward zero. Here, instrumental variable routines are utilized which increase the estimated impact of special interests on the economy.