Profits and economic development
By: Dan Schwab, Eric Werker
Contributors: Werker, Eric, author; Harvard Business School
Edition: Revised edition
Series: Working paper / Harvard Business School -- 14-087; Working paper (Harvard Business School) -- 14-087.
Publisher: Harvard Business School
Published: 2014
Place of publication: Boston]
Language: eng
Number of pages: 37
Description: Are rents, or excess profits, good for development? Using industry-level manufacturing data, this paper demonstrates a negative effect of rents, measured by the mark-up ratio, on productivity growth. The negative effect is strongest in poor countries, suggesting that high profits stymie economic development rather than enable it. Consistent with the rent-seeking mechanism of our model, we find that high rents are associated with a slower reduction in tariffs. A country's average mark-up in manufacturing is a strong negative predictor of future economic growth, indicating that we may be measuring a phenomenon of the broader business environment.
Notes: "March 2014. (Revised April 2014.)" -- Publisher's Web site.

Includes bibliographical references (pages 30-33).