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19 Cato J. 7 (1999-2000)
Rent Seeking and Economic Growth: Evidence from the States

handle is hein.journals/catoj19 and id is 11 raw text is: RENT SEEKING AND ECONoMIC GROWTH: EVIDENCE FROM THE STATES Harold J. Brumm Any significant government intervention beyond the limits defined by the minimal or protective state will counter, indeed may block, the dissipation of rents (Buchanan 1980: 7). Rent-seeking activity retards economic growth, because it merely redistributes wealth; rent seekers (unlike profit seekers in a competitive market) do not create wealth. To the extent that economic growth is a desideratum, a goal of public policy should be the restraint of government interventions that create and sustain artificial rents (i.e., payments above opportunity costs from contrived scarcities created by government grants of eco- nomic power).' The seminal work of Robert Barro (1991) has spawned a huge empirical literature on the determinants of economic growth. Yet, as Robert Tollison (1995: 358) points out, an empirical question that remains largely unexplored is the extent to which economic growth is affected by rent seeking.' The purpose of this paper is to assess that issue empirically by examining data for the 48 contiguous states. Empirical Model Specification The empirical literature on economic growth has identified a variety of possible determinants of the rate of economic growth. The basic Cato Journal, Vol. 19, No. I (Spring/Summer 1999). Copyright @ Cato Institute. All rights reserved. Harold J. Brumm is Senior Economist in the Office of the Chief Economist at the U.S. General Accounting Office. The views expressed in this paper are those of the author and should not be attributed to the U.S. GAO. This paper has benefited from the comments of an anonymous referee. 'In addition to persistent artificial rents, which inevitably can be traced to government interventions of one sort or another, at any point in time there exist natural rents, which are inherent to the price system (Tollison 1982: 575). 2The author is aware of just two empirical studies that investigate the effect of rent seeking on economic growth: Murphy, Shleifer, and Vishny (1991), which examines data at the national level for a cross-section of 91 countries, and Rama (1993), which examines Uruguay time-series data at both the national and sectoral levels for the period 1925-83. 7

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