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The Growth Effects of Property Rights: The Role of Finance

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  • Bose, Niloy
  • Murshid, Antu Panini
  • Wurm, Martin A.

Abstract

Using a variety of statistical approaches, we show that the relationship between property rights and growth is nonlinear; stronger enforcement of property rights raises growth up to a point before growth begins to decline. We provide a simple theoretical rationale for this conclusion using a model with informational asymmetries in the financial sector. Stronger property rights have two opposing effects. On the one hand it increases capital formation and growth. On the other hand it encourages bad borrowing practices. Thus there exists an optimal level of property rights which maximizes growth. However, as financial markets mature, the negative effects associated with stronger property rights become weaker.

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Bibliographic Info

Article provided by Elsevier in its journal World Development.

Volume (Year): 40 (2012)
Issue (Month): 9 ()
Pages: 1784-1797

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Handle: RePEc:eee:wdevel:v:40:y:2012:i:9:p:1784-1797

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Web page: http://www.elsevier.com/locate/worlddev

Related research

Keywords: financial development; growth; institutions; property rights; thresholds;

References

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Cited by:
  1. Youssouf KIENDREBEOGO, 2012. "The Effects of Financial Development on Trade Performance and the Role of Institutions," Working Papers halshs-00748544, HAL.

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