What Determines Protection of Property Rights? An Analysis of Direct and Indirect Effects
University of Maryland - Robert H. Smith School of Business
George Washington University - School of Business
World Bank - Financial and Private Sector Development; World Bank
March 1, 2006
Robert H. Smith School Research Paper No. RHS 06-032
Using cross-country data, this paper evaluates historical determinants of protection of property rights. We examine four historical theories that focus on conceptually distinct causal variables in shaping institutions, as captured by legal origin, endowments, ethnic diversity and religion. There is only one realization of the data with relatively few observations, which have by now been well explored in the literature. Given the correlations between the explanatory variables, it is difficult to fashion empirical tests which are consistent in their treatment of the competing theories and to know which regressions to take seriously, giving rise to competing interpretations in the literature. We use Directed Acyclic Graph (DAG) methodology to identify which historical factors are direct determinants of property rights protection and which are not, and subject the outcomes to a battery of robustness tests. The empirical results support ethnic fractionalization as a robust determinant of property rights protection. Despite the attention it has received in the literature, the impact of legal origin on protection of property rights appears fragile and dependent on the inclusion of transition economies in the sample.
Number of Pages in PDF File: 55
Keywords: Property Rights, Legal Origin, Endowments, Directed Acyclic Graphs
JEL Classification: K4, D23
Date posted: March 22, 2006 ; Last revised: November 13, 2009
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