Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 656: Human Capital, Rent Seeking, and a Transition from Stagnation to Growth

Nils-Petter Lagerlöf () and Thomas Tangerås ()
Additional contact information
Nils-Petter Lagerlöf: York University, Postal: Department of Economics, 4700 Keele Street, M3J 1PE Toronto, ON, Canada
Thomas Tangerås: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 Stockholm, Sweden

Abstract: We present a growth model where agents divide time between rent seeking in the form of resource competition; and working in a human capital sector, interpreted as trade or manufacturing. Rent seeking exerts negative externalities on the productivity of human capital, generating multiple steady states. Adding shocks to the model -- in the form of violence in the rent seeking process, and changes in the size of the contested resource base -- the model can replicate a long phase with stagnant incomes and high levels of rent seeking, interrupted by small failed growth spurts; this is eventually followed by a permanent transition to a sustained growth path where rent seeking vanishes in the limit. We illustrate the workings of the model with simulations and argue that the results, and what drives them, fit with some broad historical facts about growth, rent seeking, and the so-called natural resource curse.

Keywords: Conflict; Long-Run Growth; Rent Seeking

JEL-codes: D74; N10; O15

38 pages, October 19, 2005

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