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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.

Suggested Citation

  • Bose, Niloy & Murshid, Antu Panini & Wurm, Martin A., 2012. "The Growth Effects of Property Rights: The Role of Finance," World Development, Elsevier, vol. 40(9), pages 1784-1797.
  • Handle: RePEc:eee:wdevel:v:40:y:2012:i:9:p:1784-1797
    DOI: 10.1016/j.worlddev.2012.04.020
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    4. Lahsen, Amina. A & Piper, Alan T., 2018. "Property Rights and Intellectual Property Protection, GDP growth and Well-Being in Latin America," MPRA Paper 90034, University Library of Munich, Germany.
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    7. Ng, Adam & Dewandaru, Ginanjar & Ibrahim, Mansor H., 2015. "Property rights and the stock market-growth nexus," The North American Journal of Economics and Finance, Elsevier, vol. 32(C), pages 48-63.
    8. Svatopluk Kapounek, 2017. "The Impact of Institutional Quality on Bank Lending Activity: Evidence from Bayesian Model Averaging," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(5), pages 372-395, October.
    9. Ang, Alvin & Mendoza, Ronald U. & Canare, Tristan A., 2015. "Doing Business: A Review of Literature and Its Role in APEC 2015," Discussion Papers DP 2015-37, Philippine Institute for Development Studies.
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