INSTITUTIONS AND ECONOMIC PERFORMANCE: CROSS‐COUNTRY TESTS USING ALTERNATIVE INSTITUTIONAL MEASURES

TLDR

The study examines how property rights affect economic growth using country risk evaluator indicators for foreign investors. The authors use country risk evaluator indicators that assess contract enforceability and expropriation risk. Property rights, measured by these indicators, have a stronger effect on investment and growth than traditional proxies, raise convergence rates to U.S.

Abstract

The impact of property rights on economic growth is examined using indicators provided by country risk evaluators to potential foreign investors. Indicators include evaluations of contract enforceability and risk of expropriation. Using these variables, property rights are found to have a greater impact on investment and growth than has previously been found for proxies such as the Gastil indices of liberties, and frequencies of revolutions, coups and political assassinations. Rates of convergence to U.S.‐level incomes increase notably when these property rights variables are included in growth regressions. These results are robust to the inclusion of measures of factor accumulation and of economic policy.