Evaluating Alternative Measures of Institutional Protection of Private Property and Their Relative Ability to Predict Economic Development

Abstract

Economic theory and a growing body of empirical literature suggest that private property rights are an important determinant of economic development. In this paper, four commonly used measures of institutional protection of private property rights are assessed, including their relative ability to predict the level of GDP per capita. The risk of expropriation measure from the International Country Risk Guide, the rule of law measure from the World Governance Indicators, and the property rights index from the Economic Freedom of the World exert a similar and robust positive impact on the level of economic development. The executive constraints measure from Polity IV exerts a much smaller impact, and is sensitive to the model specification. The relative strengths and weaknesses of each measure are also addressed. The analysis provides researchers with guidance on selecting an appropriate measure of private property institutions for studies of economic performance.

Keywords: Capitalist Institutions, Comparative Economic Development, Economic Freedom, Legal Institutions, Private Property Rights, Rule of Law

JEL Classification: K11, O17, P14, P48