Rent-Seeking Activities,Misallocation, and Innovation in Argentina
World Bank 2020.07.17
What is the efficiency cost of rent-seeking activities in Argentina? This paper quantitatively shows that rent-seeking activities in the form of bribes have aggregate effects through two channels.First, they generate misallocation of resources across firms because they prevent resources from flowing to the most productive firms, reallocating resources instead to those that succeed at rent-seeking. Second, such activities affect the allocation of resources within firms because rent-seeking drives resources away from innovation. These two channels can help in understanding why Argentina has more misallocation across firms and less investment in research and development, compared with developed economies,explaining a sizable portion of Argentina‘s low productivity.