Endogenous insecurity and economic development |
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| Affiliation: | 1. Department of Epidemiology, Biostatistics and Occupational Health, McGill University, Montreal, Quebec, Canada;2. Division of Clinical Epidemiology, Research Institute of McGill University Health Centre, Montreal, Quebec, Canada;3. Department of Medicine, McGill University, Montreal, Quebec, Canada;4. Montreal Behavioural Medicine Centre, Hôpital du Sacré-Coeur de Montréal, Montreal, Quebec, Canada;5. Department of Exercise Science, Concordia University, Montreal, Quebec, Canada;6. Division of General Internal Medicine, McGill University Health Centre, Montreal, Quebec, Canada;7. Department of Medicine, University of British Columbia, Vancouver, British Columbia, Canada;8. Divisions of Cardiology and Clinical Epidemiology, Jewish General Hospital and McGill University, Montreal, Quebec, Canada;9. Department of Epidemiology and Biostatistics, Schulich School of Medicine and Dentistry, Western University, London, Ontario, Canada;10. Department of Psychology, University of Quebec at Montreal, Montreal, Quebec, Canada;11. Research Centre, Montreal Heart Institute, Montreal, Quebec, Canada;1. Ifo Institute — Leibniz-Institute for Economic Research at the University of Munich, Poschingerstr. 5, D-81679 Munich. Germany;2. University of Erlangen-Nuremberg, Department of Economics, Lange Gasse 20, 90403 Nuremberg, Germany |
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| Abstract: | We explore the implications of endogenous credit market imperfections for the endogenous relationship between investment insecurity and the process of economic development. In the initial stages of development, the fraction of agents engaged in nonproductive diversionary activities (e.g. rent-seeking) grows as the opportunities to gain from diversionary activities expand. In later stages, however, diversion falls as capital market imperfections are overcome and productive activities become more secure and more profitable. We detail the forces that determine whether the insecurity generated by an economy's early development will choke off the growth process. We also compare the cost-effectiveness of alternative policies designed to prevent diversion. |
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