Law, Property Rights and Growth

34 Pages Posted: 5 Jun 2001

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Abstract

This paper investigates how different legal frameworks not only affect the amount of external financing available, but also the allocation of resources among different type of assets. Using a simple model, we show that a firm will get less financing, and thus invest less, in a weak law and order environment. We also show that weaker property rights can lead to an asset substitution effect with firms investing less in intangible assets. Empirically, these two effects appear to be equally important drivers of growth in sectoral value added for a large number of countries. Using individual firm data, we also show that weaker legal frameworks are associated with relatively more fixed assets, but less long-term financing for a given amount of fixed assets.

Note: Previously titled "Law, Finance, Investment and Growth"

JEL Classification: G31, G32, K10, O34, O4

Suggested Citation

Claessens, Stijn and Laeven, Luc A., Law, Property Rights and Growth. 3rd Annual Fin. Mkt. Dev. Conference, Hong Kong 2001. Available at SSRN: https://ssrn.com/abstract=270644 or http://dx.doi.org/10.2139/ssrn.270644

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Luc A. Laeven

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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