Institutions, Lobbying, and Economic Performance

Bonnie Wilson and Jac Heckelman

Working Papers from Saint Louis University, Department of Economics

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.

Keywords: economic freedom; institutions; lobbying; special-interest groups; growth (search for similar items in EconPapers)
JEL-codes: D72 H10 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2012-09
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Published in Economics & Politics, November 2013, pages 360 - 386

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Journal Article: Institutions, Lobbying, and Economic Performance (2013)
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