Property Rights Reform and Development: A Critique of the Cross-National Regression Literature

The legal protection of property rights is increasingly viewed as a crucial, if not the crucial, condition for economic growth and pro-poor development. Empirical support is generally based on cross-national correlations between measures of secure property rights and good development outcomes in the long-run. However, whether these associations hold in the short- and medium-run has, to our knowledge, not been studied. In this paper, we evaluate the relationship between the protection of property rights and growth using three property rights indices from the Heritage Foundation, Fraser Institute and World Economic Forum covering the experience of 162 countries between 1995 and 2005. While we find a strong correlation between the level of country property rights protections scores and economic growth, when we evaluate the change and improvement in country ranking scores of property rights, this positive association disappears. These findings could be interpreted as indicating either that there is i) no causal relationship between property rights and growth (at least in the short-run), or that ii) the property rights indices have poor validity.