Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86249
Authors: 
Perotti, Enrico
Volpin, Paolo
Year of Publication: 
2004
Series/Report no.: 
Tinbergen Institute Discussion Paper 04-088/2
Abstract: 
We develop a model of endogenous lobby formation in which wealth inequalityand political accountability undermine entry and financial development. In-cumbents seek a low level of effective investor protection to prevent potentialentrants from raising capital. They succeed because they can promise largerpolitical contributions than the entrants due to the higher rents earned withless competition. Entry and investor protection improve when wealth distribu-tion becomes less unequal, and the political system becomes more accountable.Consistent with these predictions, in a cross-section of 38 countries we find that greater accountability is associated with higher entry in sectors that are more dependent on external capital and have greater growth opportunities. Also,higher accountability and lower income inequality are associated with more ef-fective legal enforcement, even after controlling for legal origin and per-capita income.
Subjects: 
Politics
Entry
Financial Development
Entrepreneurship
Investor protection
Income Inequality
Growth
JEL: 
G21
G28
G32
Document Type: 
Working Paper

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