Interest Groups and Investment: A Further Test of the Olson Hypothesis

Mancur Olson's institutional sclerosishypothesis may be evident in the effects ofinterest groups on investment in physicalcapital. To test this proposition, we usecross sectional data on 42 countries forwhich information on the number of interestgroups is available to estimate the effectof those groups on the share of GDP thatgoes into physical investment. The resultsindicate that interest groups have adifferent effect on physical investment inOECD and non-OECD countries. In the OECDcountries, we find support for thehypothesis that interest groups harminvestment in physical capital. Indeveloping countries, interest groupseither have no effect on physicalinvestment or they have a slight beneficialimpact.