Destructive competition : factionalism and rent-seeking in Iran

Abstract

Empirical evidence shows that countries richly endowed with natural resources like oil and gas tend to have slower economic growth than resource poor countries. The present paper focuses on rentseeking as a source of the “resource curse”, using Iran as a case in point. Iran is an interesting case, both because it is a rentier economy in the oil rich Middle East, and because its political system is highly factionalized. The distortions from the factionalized political system are threefold. First, resources are wasted in the competition for rents. Second, the lack of property rights protection results in less (private) investment at the aggregate level. Third, imbalances in the distribution of political power between groups lead to a distortion in the allocation of investment funds.