WP-14: Technology Adoption in Rent Seeking Economies

The issues of development in developing countries are twofold. First, growth and development requires technological upgrading and industrial capability-building. Second, embedded within each developing economy is a rent-seeking society, which operates both formally and informally. This paper assesses each of the two issues in turn by presenting an overview of key contributions in the literature on the institutional economic analysis of technological change, learning, rents, and rent-seeking. It first reviews the neoclassical literature on technology and growth, which was largely derived from Solow’s model on growth and technical change. The following section presents alternative approaches, which challenge Solow’s and others’ assumptions by pointing out that the appropriation of knowledge is neither automatic nor costless. It is in this context that a state’s intervention in the forms of industrial policies is arguably essential for catching up. Next, the paper surveys the theoretical debate on rents and rent-seeking especially in relation to the issue of learning. This includes the notable research of Joseph Stiglitz, Ricardo Hausmann, Dani Rodrik, and Mushtaq Khan. Finally, considerations about the roles of politics and informal institutions, especially the research of Douglas North and colleagues, Ha-Joon Chang, Ali Cheema and Mushtaq Khan, in solving the critical two-fold problem of development are presented. This paper assents to the heterodox economists’ assertion that, under certain conditions, rents could be value enhancing and thus, effective development strategies should take into consideration the creation and management of value-enhancing rents.

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