Interest groups and investment : A further test of the Olson

Mancur Olson’s institutional sclerosis hypothesis may be evident in the effects of interest groups on investment in physical capital. To test this proposition, we use cross sectional data on 42 countries for which information on the number of interest groups is available to estimate the effect of those groups on the share of GDP that goes into physical investment. The results indicate that interest groups have a different effect on physical investment in OECD and non-OECD countries. In the OECD countries, we find support for the hypothesis that interest groups harm investment in physical capital. In developing countries, interest groups either have no effect on physical investment or they have a slight beneficial impact.