Security of Property Rights for Whom?

Abstract

Using a new set of indicators that measure the Property Insecurity of ethnopolitical minority groups, I find that Property Insecurity is not correlated with the Risk of Expropriation facing foreign investors and domestic elites – revealing that the aggregate measures of 'institutional quality' broadly used in the cross-country empirical development literature proxy only limited dimensions of the institutions being measured. Existing widely used Risk of Expropriation indicators, initially designed to assess the security of property rights faced by foreign investors, are relevant to the experiences of elites but fail to adequately incorporate the perspective of marginalized minority groups – so do not reflect the risk of expropriation faced by a country’s population more broadly. It has been widely argued that secure private property rights are a prerequisite for economic development. This article demonstrates that it fundamentally matters whose property rights are secure. I find that Property Insecurity of ethnopolitical minorities does not reduce growth in either the short or long term; that the severity of Property Insecurity for the worst-off group in a country is strongly related to the onset of armed conflict; and that controlling for civil war, Property Insecurity is associated with higher growth. Economic growth can occur when the property rights of elites are secure but marginalized minorities face high a risk of expropriation, because land is reallocated into the hands of investors with access to capital. However, the potentially growth enhancing effect of forced displacement and resettlement is mitigated because the property insecurity of minorities is also correlated with conflict, which reduces growth.

Keywords: property rights, economic development, growth, risk of expropriation, property insecurity, minorities, ethnopolitical minorities, conflict, civil war, institutions, indicators

JEL Classification: A10, A14, B25, H11, J15, J18, K, K1, K11, K12, K33, O1, O1, O11, O12, O13, O15, O17, O18, Q15