51 Pages Posted: 15 Sep 2010 Last revised: 27 Nov 2011
Date Written: August 9, 2011
In this paper we try to explain why the misallocation of resources across different productive sectors tends to persist over time. We document that there is a link between the distribution of the public expenditure across sectors and the sectoral composition of an economy. We propose a general equilibrium model that interprets this stylized fact as a reduced form representation of two structural relations, namely, the dynamic effect of the public expenditure on the future distribution of value added and the influence of the distribution of vested interests across sectors on current public policy decisions. The model predicts that different initial sectoral compositions cause different future streams of public expenditures and therefore different paces of development.
Keywords: Public Expenditure, Sectoral Composition, Vested Interests, Economic Growth
JEL Classification: O41, O43
Suggested Citation: Suggested Citation
By N. Mankiw
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