What Determines Protection of Property Rights? An Analysis of Direct and Indirect Effects

55 Pages Posted: 22 Mar 2006 Last revised: 13 Nov 2009

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business

Meghana Ayyagari

George Washington University - School of Business

Asli Demirgüç-Kunt

World Bank - Development Research Group; World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2006

Abstract

Using cross-country data, this paper evaluates historical determinants of protection of property rights. We examine four historical theories that focus on conceptually distinct causal variables in shaping institutions, as captured by legal origin, endowments, ethnic diversity and religion. There is only one realization of the data with relatively few observations, which have by now been well explored in the literature. Given the correlations between the explanatory variables, it is difficult to fashion empirical tests which are consistent in their treatment of the competing theories and to know which regressions to take seriously, giving rise to competing interpretations in the literature. We use Directed Acyclic Graph (DAG) methodology to identify which historical factors are direct determinants of property rights protection and which are not, and subject the outcomes to a battery of robustness tests. The empirical results support ethnic fractionalization as a robust determinant of property rights protection. Despite the attention it has received in the literature, the impact of legal origin on protection of property rights appears fragile and dependent on the inclusion of transition economies in the sample.

Keywords: Property Rights, Legal Origin, Endowments, Directed Acyclic Graphs

JEL Classification: K4, D23

Suggested Citation

Maksimovic, Vojislav and Ayyagari, Meghana and Demirgüç-Kunt, Asli, What Determines Protection of Property Rights? An Analysis of Direct and Indirect Effects (March 1, 2006). Robert H. Smith School Research Paper No. RHS 06-032. Available at SSRN: https://ssrn.com/abstract=891750 or http://dx.doi.org/10.2139/ssrn.891750

Vojislav Maksimovic (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

Van Munching Hall
College Park, MD 20742-1815
United States
301-405-2125 (Phone)
301-314-9157 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/vmax/

Meghana Ayyagari

George Washington University - School of Business ( email )

Washington, DC 20052
United States

Asli Demirgüç-Kunt

World Bank - Development Research Group ( email )

United States
202-473-7479 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/ademirguckunt/

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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