Interest Groups and the "Rise and Decline" of Growth

Interest groups are known to exert a sclerotic impact on mean growth, a la Olson (1982). It is unknown, however, what impact (if any) groups exert on the volatility of growth an important hindrance to development. In this article, we first consider what impact we should expect Olson groups to have on the volatility of growth. We then estimate the relation between groups and growth volatility in a cross-country panel, using system generalized method of moments. The findings indicate that groups are associated with growth stability. In addition, the findings suggest that interest groups may be a source of the stability observed in democracies.