Lobbying on Entry

Enrico Perotti and Paolo Volpin
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Paolo Volpin: London Business School, and CEPR

No 04-088/2, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We develop a model of endogenous lobby formation in which wealth inequalityand political accountability undermine entry and financial development. In-cumbents seek a low level of effective investor protection to prevent potentialentrants from raising capital. They succeed because they can promise largerpolitical contributions than the entrants due to the higher rents earned withless competition. Entry and investor protection improve when wealth distribu-tion becomes less unequal, and the political system becomes more accountable.Consistent with these predictions, in a cross-section of 38 countries we find that greater accountability is associated with higher entry in sectors that are more dependent on external capital and have greater growth opportunities. Also,higher accountability and lower income inequality are associated with more ef-fective legal enforcement, even after controlling for legal origin and per-capita income.

Keywords: Politics; Entry; Financial Development; Entrepreneurship; Investor protection; Income Inequality; Growth (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Date: 2004-08-19
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

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Working Paper: Lobbying on Entry (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20040088

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