Journal of Economic Growth

, Volume 1, Issue 2, pp 213–241

Power, growth, and the voracity effect

  • Philip R. Lane
  • Aaron Tornell
Article

DOI: 10.1007/BF00138863

Cite this article as:
Lane, P.R. & Tornell, A. J Econ Growth (1996) 1: 213. doi:10.1007/BF00138863

Abstract

Why is it that resource-rich countries tend to have lower growth rates than resource-poor countries? And why is it that many countries that enjoy terms-of-trade windfalls end up with lower growth rates? To explain these puzzles, we extend the neoclassical growth model by replacing the representative agent with multiple powerful groups and by introducing a new concept, the voracity effect—a more than proportional increase in redistribution in response to an increase in the raw rate of return. We show that, in an economy with powerful groups and weak institutions, the voracity effect operates if the elasticity of intertemporal substitution is high enough. That is, there exists a negative relationship between the growth rate and the raw rate of return, which is positively related to the terms of trade. We provide some empirical evidence in support of the mechanism we propose.

Keywords

economic growth terms-of-trade shocks differential game common pool problem 

JEL classification

040 Q33 F43 
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Copyright information

© Kluwer Academic Publishers 1996

Authors and Affiliations

  • Philip R. Lane
    • 1
  • Aaron Tornell
    • 2
    • 3
  1. 1.Department of EconomicsColumbia UniversityNew YorkUSA
  2. 2.Department of EconomicsHarvard UniversityCambridgeUSA
  3. 3.NBERUSA

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