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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)

December 2006

ECGI Finance Working Paper No. 150/2007

Abstract:     
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

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Date posted: April 5, 2007  

Suggested Citation

Rajan, Raghuram G., The Persistence of Underdevelopment: Constituencies and Competitive Rent Preservation (December 2006). ECGI Finance Working Paper No. 150/2007. Available at SSRN: http://ssrn.com/abstract=977151 or http://dx.doi.org/10.2139/ssrn.977151

Contact Information

Raghuram G. Rajan (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4437 (Phone)
773-702-0458 (Fax)
International Monetary Fund (IMF) ( email )
700 19th Street NW
Washington, DC 20431
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
773-702-9299 (Phone)
773-702-0458 (Fax)
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