Rent-seeking and institutional stability in developing countries*

Although developing countries are most often associated with institutional instability, most are fairly stable and may be considered extremely stable if one takes into account the fact that policies adopted by many of these nations are highly inefficient. In a large number of cases, post-independence economic policies adopted by developing countries have resulted in very slow, stagnant or even negative economic growth. In more advanced and democratic coun,tries, such policies would prevent the reelection of leaders. Although a small fraction of the population enjoys an extremely high standard of living, the majority of the population in developing countries have not experienced any significant gains in their standard of living since independence. Yet, while there have been several coups and attempted coups, many governments have remained relatively stable with some leaders remaining in power for over a quarter of a century. In other cases leaders have served until their death and successors have continued uninterrupted with remarkable stability even when such leaders adopt what may be considered extremely inefficient policies. Why then have many institutions remained so stable? The present paper argues that the stability observed in many developing countries is a result of a rent-seeking equilibrium between well organized interest groups in the population that compete for wealth transfers generated by the relatively weaker and more poorly organized groups. In this equilibrium, the military is one of the most important interest groups that benefit from the transfers. Because rent-seeking in these countries often involves violence, the