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.
Similar content being viewed by others
References
Ades, A., and E. Glaeser. (1995). “Trade and Circuses: Explaining Urban Giants.” Quarterly Journal of Economics 110, 195–228.
Alesina, A. S. Ozler N., Roubini, and P. Swagel. (1996). “Political Instability and Economic Growth.” Journal of Economic Growth 1, 193–215.
Alesina, A., and D. Rodrik. (1994). “Distributive Politics and Economic Growth.” Quarterly Journal of Economics 109, 465–490.
Auty, R., and A. Gelb. (1986). “Oil Windfalls in a Small Parliamentary Democracy: Their Impact on Trinidad and Tobago.” World Development 14, 1161–1175.
Bangura, Y. (1987). “The Politics of Nigeria's Debt Crisis.” In Okello Oculi (ed.), Nigerian Alternatives. Zaira, Nigeria: Ahmabu Ballo University.
Barro, R. (1991). “Economic Growth in a Cross-Section of Countries.” Quarterly Journal of Economics 106, 327–369.
Barro, R. (1996). “Democracy and Growth.” Journal of Economic Growth 1, 1–27.
Barro, R., and J-W. Lee. (1993). “Losers and Winners in Economic Growth.” NBER Working Paper 4341.
Barro, R., and J-W. Lee. (1994). “Data Set for a Panel of 138 Countries.” Mimeo, Harvard University.
Barro, R., and X. Sala-i-Martin. (1995). Economic Growth. New York: McGraw-Hill.
Benhabib, J., and R. Radner. (1992). “Joint Exploitation of a Productive Asset: A Game Theoretic Approach.” Economic Theory 2, 155–190.
Benhabib, J., and A. Rustichini. (1996). “Social Conflict and Growth.” Journal of Economic Growth 1, 125–142.
Bourgignon, F. (1988). “Venezuela.” In Alan Gelb (ed.), Oil Booms: Windfalls or Curse? New York: Oxford University Press.
de Pozuelo, E., J. Bordas, and S. Tarin. (1994). Guia de la Corrupcion. Barcelona: Plaza & Janes.
Easterly, W., M. Kremer, L. Pritchett, and L. H. Summers. (1993). “Good Policy or Good Luck? Country Growth Performance and Temporary Shocks.” Journal of Monetary Economics 32, 459–483.
Ekaizer, E. (1994). Banqueros de Rapina: Cronica Secreta de Mario Conde. Barcelona: Plaza & Janes.
Essien, E. (1990). Nigeria Under Structural Adjustment. Ibadan, Nigeria: Fountain Publications.
Gelb, A. (1988). Oil Booms, Windfalls or Curse? New York: Oxford University Press.
Graf, W. (1988). The Nigerian State: Political Economy, State, Class and Political System in the Post-Colonial Era. Portsmouth NH: Heinemann.
Knack, S., and P. Keefer. (1995). “Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures.” Economics and Politics 7, 207–228.
Lancaster, K. (1973). “The Dynamic Inefficiency of Capitalism.” Journal of Political Economy 81, 1092–1109.
Lane, P., and A. Tornell. (1995). “Power Concentration and Growth.” Harvard Institute for Economic Research Discussion Paper 1720.
Larrain, F., and M. Selowsky. (1991). The Public Sector and the Latin American Crisis. San Francisco: ICS Press.
Levhari, D., and L. Mirman. (1980). “The Great Fish-War: An Example Using a Dynamic Cournot-Nash Solution.” Bell Journal of Economics 11, 322–334.
Levine, R., and D. Renelt. (1992). “A Sensitivity Analysis of Cross-Country Growth Regressions.” American Economic Review 82, 942–963.
Little, I., R. Cooper, M. Corden, and S. Rajapatirana. (1994). Booms, Crisis, and Adjustment. New York: Oxford University Press.
Madunagu, E. (1983). Nigeria, The Economy and the People: The Political Economy of State Robbery and its Popular-Democratic Negation-London: New Beacon Books.
Mankiw, G., D. Romer, and D. Weil. (1992). “A Contribution to the Empirics of Economic Growth.” Quarterly Journal of Economics 107, 407–437.
Maskin, E., and J. Tirole. (1994). “Markov Perfect Equilibrium.” Harvard Institute for Economic Research Discussion Paper 11–94.
Mauro, P. (1995). “Corruption and Growth.” Quarterly Journal of Economics 110, 681–712.
Naim, M. (1993). Paper Tigers or Minotaurs. Washington DC: Carnegie Endowment.
Olson, M. (1982). The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities. New Haven: Yale University Press.
Olson, M. (1993). “Dictatorship, Democracy, and Development.” American Political Science Review 87, 567–576.
Perotti, R. (1996). “Growth of Income Distribution and Democracy: What the Data Say.” Journal of Economic Growth 1, 153–191.
Persson, T., and G. Tabellini. (1991). “Growth Distribution, and Politics.” In Alex Cukierman, Zvi Hercowitz, and Leonardo Liederman (eds.), Political Economy, Growth and Business Cycles. Cambridge, MA: MIT Press.
Pollard, H. (1985). “The Erosion of Agriculture in an Oil Economy: The Case of Export Crop Production in Trinidad.” World Development 13, 819–837.
Royko, M. (1971). Boss: Richard Daley of Chicago. New York: Dutton.
Sachs, J., and A. Warner. (1995). “Natural Resource Abundance and Economic Growth.” Mimeo, Harvard Institute for International Development.
Seierstad, A., and K. Sydsaeter. (1987). Optimal Control Theory with Economic Applications. Amsterdam: North-Holland.
Shleifer, A., and R. Vishny. (1994). “Politicians and Firms.” Quarterly Journal of Economics 109, 995–1926.
Tobi, D. (1989). “Intergovernmental Fiscal Relations and the Public Policy” in Y. Usman (ed.) Nigeria Since Independence: The first twenty-five years. Ibadan [Nigeria]: Heinemann.
Tornell, A., and P. Lane. (1994). “Are Windfalls a Curse? A Non-Representative Agent Model of the Current Account and Fiscal Policy.” NBER Working Paper 4839.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Lane, P.R., Tornell, A. Power, growth, and the voracity effect. J Econ Growth 1, 213–241 (1996). https://doi.org/10.1007/BF00138863
Issue Date:
DOI: https://doi.org/10.1007/BF00138863