Property Rights Protection and Allocation of Investment : Evidence from China's Private Firms

Property rights protection has been found to promote economic growth at the macro level, and affect the incentive for investment at the micro level. What is not clear is whether and how property rights protection affects a firm's allocation of investment across industries for a given size of investment. In this paper, using a survey data set of private enterprises in China, we find that weaker property rights protection causes firms to invest in a wider range of industries. We then explore several possible channels through which property rights protection may affect the allocation of investment across industries