Turning Cheap Talk into Economic Growth: On the Relationship Between Property Rights and Judicial Independence

Abstract

Among economists, the view that precisely defined and reliably enforced property rights are generally conducive to economic growth has been quasi-unanimous. But recently, some authors have argued that the relationship is more complex than previously acknowledged: property rights reforms might, for example, not per se lead to increases in observed growth rates. This paper contributes to the debate by emphasizing that the mere promise of secure property rights is unlikely to have any effects unless accompanied by some commitment to enforce these rights that is perceived as credible by private actors. An independent judiciary is interpreted as a tool that permits governments to make credible commitments to abide by its laws. We provide empirical evidence for a positive growth effect of property rights, once the judicial system is independent enough to guarantee their enforcement.

Keywords: Property Rights, Credible Commitment, Independent Judiciary, Unbundling Property Rights, Transmission Channels, Constitutional Economics

JEL Classification: D02, D23, H41, K11