Property Rights and Finance
65 Pages Posted: 23 Mar 2002 Last revised: 27 Oct 2010
Date Written: March 2002
Which is the tighter constraint on private sector investment: weak property rights or limited access to external finance? From a survey of new firms in post-communist countries, we find that weak property rights discourage firms from reinvesting their profits, even when bank loans are available. Where property rights are relatively strong, firms reinvest their profits; where they are relatively weak, entrepreneurs do not want to invest from retained earnings.
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