The Persistence of Underdevelopment: Constituencies and Competitive Rent Preservation
Raghuram G. Rajan
University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)
ECGI Finance Working Paper No. 150/2007
Why is underdevelopment so persistent? I argue that one reason is the initial inequality in endowments and opportunities, which leads to self-interested constituencies that perpetuate the status quo. Each constituency prefers reforms that preserve only its rents and expand its opportunities, so no comprehensive reform path may command broad support. Though the initial conditions may well be a legacy of the colonial past, persistence does not require the presence of coercive political institutions. This may be why underdevelopment has survived independence and democratization. On the one hand, such an analysis offers hope that the destiny of societies is not preordained by the political institutions they inherit through historical accident. On the other hand, it suggests we need to understand better how to alter factor endowments when societies may not have the internal will to do so.
Number of Pages in PDF File: 61
Keywords: Underdevelopment, persistence, factor endowment, constituency
JEL Classification: O43, G20
Date posted: April 5, 2007
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