Institutions and Market Reform in Emerging Economies : A Rent Seeking Perspective

The role of institutions as determinants of rent seeking success is well established. In this paper, we focus on institutions that have received little attention in the literature, namely electoral institutions. We examine three measures of electoral institutional structure that are hypothesized to be instrumental in determining the level of rent seeking. These are the type of electoral system, pluralistic or proportional; method of selection of the chief executive, presidential or parliamentary; and the number of electoral districts. An index of economic freedom is used as the metric for rent seeking opportunities created by governments. Theoretical implications of variation in these electoral institutions are developed and empirically tested employing data from 29 countries classified as having emerging market economies. Countries with emerging economies are expected to exhibit more institutional flexibility that more developed countries whose property rights are well established and defended. The empirical results are controlled for differences in a number of demographic and historical factors. Plurality electoral systems are more resistant to the political demands of rent seeking than proportional systems. Fewer election districts seem to reduce rent seeking opportunities. However, conditional on the type of electoral system, presidential systems are found to be no more resistant to rent seeking than parliamentary systems. Finally, we find strong control effects. Literacy increases a country's resistance to rent seeking while military spending and years of institutional entrenchment reduce it