This Briefing Paper presents the debate on the impact of formalised land rights on economic growth through the vectors of increased investment, credit and efficiency. At the request of DfID, the paper also considers the impact of titling on the distribution of control of property and of growth. Drawing on this debate, it identifies key research questions and weighs up the evidence to answer these questions, discussing the nature of the evidence available and highlighting gaps in current evidence that need to be tackled through further research.
Overall, the evidence reviewed on the link between secure property rights and growth focuses mainly on the impact on investment and productivity. While there is a medium/large body of evidence of mainly high quality supporting the link, there are also a high number of studies that question this link and the strength of the evidence, mainly on methodological issues.
Contradictory evidence is put forward that identifies factors other than property rights as being of primary importance for growth, such as skills, while a criticism is that the analysis fails to recognise the “cluster of institutions” that drive growth. Analysis of the relevance of other drivers of growth is based on the same dataset as used to support the link, while other analysis adjusts the dataset slightly and finds that the positive link no longer holds, particularly for developing countries. Other concerns include the difficulty of proving causality between secure property rights and growth as opposed to correlation, and the direction of that causality. Finally, concerns are raised that the measures commonly used for property rights in the cross-country literature are not adequate proxies for institutions.
While there is more substantial literature looking at effects at household level of different drivers of growth, such as credit and allocative efficiency, there is not much literature that looks at this at a larger firm, or cross-country, level.
Several research gaps were identified in this study:
- Collection and analysis of more and better quality micro level data on the impact of secure property rights on firms’ investment decisions within countries to complement and test the results from cross-country analysis.
- Collection and analysis of data on the impact of secure property rights on collateral-based finance at a macro/large firm level.
- Collection and analysis of data on the impact of secure property rights on allocative efficiency at a macro/large firm level.
- Collection and analysis of data on the impact of more formal property rights on the distribution of property and benefits from growth at a national/cross-country level.
