DO GOVERNMENTS SUPPRESS GROWTH? INSTITUTIONS, RENT-SEEKING, AND INNOVATION BLOCKING IN A
MODEL OF SCHUMPETERIAN GROWTH
AZAM CHAUDHRY AND PHILLIP GARNER
This paper argues that some governments adopt growth-reducing policies due to the rational self-interest of the political elites. The model takes a rent-seeking government that can block innovation and incorporates it into a Schumpeterian growth model. The quality of a country’s institutions is reflected in the cost of innovation blocking. An increase in the level of innovation-blocking activity will reduce the rate of innovation and therefore reduce growth. The government also faces the possibility of losing power whenever an innovation occurs. We examine the conditions under which a government will choose to block innovation and suppress growth.
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