SLOW DEVELOPMENT AND SPECIAL INTERESTS

This article argues that a natural implication of an innovation-based theory of growth is that slow development facilitates the formation of special interest groups. We demonstrate this in a growth model where innovations take the form of new goods and new production processes, and where factor suppliers in individual industries can organize to form rent-extracting special interest groups. We then examine the effect these groups have on an economy's subsequent development. We find that these groups can retard an economy's development for extended periods, but not permanently. Their long-run effect is to increase the volatility of the development process. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.