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22 Cato J. 211 (2002-2003)
Rent Seeking and Economic Growth: Evidence from a Panel of U.S. States

handle is hein.journals/catoj22 and id is 215 raw text is: RENT SEEKING AND ECONOMIC GROWTH: EVIDENCE FROM A PANEL OF U.S. STATES Ismail M. Cole and M. Arshad Chawdhry Rent-seeking behavior would include all of the various ways by which individuals or groups lobby government for taxing, spending and regulatory policies that confer finan- cial benefits or other specific advantages upon them at the expense of the taxpayers or of consumers or other groups or individuals with which the beneficiaries may be in eco- nomic competition. -Leon Felkins A copious body of theoretical literature has developed that main- tains that rent-seeking activity (RSA) inhibits economic growth by diverting resources from productive uses (Buchanan 1980; Tollison 1982; Olson 1982; Murphy, Shleifer, and Vishny 1991). Direct em- pirical investigation to substantiate this traditional view, however, has been neglected by many researchers. A recent exception is Harold Brumm's use of cross-sectional data from the 48 contiguous United States to indicate that RSA activity is indeed harmful to economic growth (Brumm 1999). His single-equation growth model assumes that RSA is exogenous to the growth process, yet there are plausible theoretical arguments suggesting that RSA and economic growth may be mutually causal (Murphy et al. 1991). Ignoring that possibility may lead to biased estimates of the growth effects. Also, RSA may influ- ence some of the determinants of growth such as physical and human capital investment, implying that RSA affects economic growth through multiple channels. Those indirect effects are not captured by Cato Journal, Vol. 22, No. 2 (Fall 2002). Copyright @ Cato Institute. All rights reserved. Ismail M. Cole and M. Arshad Chawdry are Professors of Economics at the California University of Pennsylvania. An earlier version of this paper was presented at the 27th Annual Conference of the Eastern Economic Association held in New York City, February 2001. The authors thank Harold Brumm for helpful comments and suggestions. 211

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