Weak Property Rights Research Articles

The curse of COVID-19 on foreign direct investment: assessing the role of property rights amidst the pandemic

ABSTRACT How did the COVID-19 pandemic impact foreign direct investment (FDI)? Following the outbreak of COVID-19, the overall volume of FDI inflows plummeted. However, COVID-19’s adverse effects on FDI in host countries exhibited discernible variability contingent upon the characteristics of domestic institutions, particularly the robustness of property rights within these countries. While host countries with strong property rights experienced a mitigated negative impact on FDI, contrary to general expectations, our analysis suggests that host countries with weak property rights may have also evaded a significant reduction in FDI inflows during the pandemic. This was primarily because both strong and weak property rights institutions in host countries conveyed positive signals to investors, which may have incentivized them to continue their investments even amidst the pandemic-induced crisis. Analyzing a time-series cross-sectional dataset of 126 developing countries covering the period 2009–2021, our findings reveal a U-shaped relationship between FDI and property rights. This implies that COVID-19’s impact manifested as a weak negative force on FDI inflows in host countries with weak property rights as well as those with strong property rights. Conversely, host countries with moderately strong property rights tended to suffer a substantial reduction in FDI.

Chiefs, Courts, and Upholding Property Rights: Quasi-Experimental Evidence from Sierra Leone

Abstract Land disputes are unavoidable and costly to resolve in the formal courts in contexts with weak property rights and low state capacity. In order to relax the pressure on strained formal courts, many countries permit parallel informal dispute-resolution forums. This paper studies the extent to which one such forum—Chiefdom Land Committees (CLCs)—in Sierra Leone is able to resolve land disputes. This paper constructs a data set of ligated cases at local courts across the country and implements a difference-in-difference design to estimate the effect of the CLCs on land caseload in the formal courts. Contrary to the policy goals, this paper finds that on average, chiefdoms with CLCs have higher land caseload in the formal courts three years on. By adopting the CLCs, chiefdoms plausibly made land issues more salient, but, instead of providing final resolutions, CLCs are conduits for the formalization of land disputes.

PROPERTY RIGHTS GUARANTEES AS PREREQUISITES FOR ECONOMIC COMPETITION: AN EMPIRICAL STUDY

Economic competition by definition implies a choice between competing alternatives. But can economic agents always protect their rights to make this choice? In order to protect property rights, they should have a guarantor who imposes sanctions on the violator. However, the guarantor must be able to use violence, since the imposition of sanctions is often not voluntary. This paper shows that the uneven distribution of violence in society, which is not monopolized by one decision-making center and/or applied outside the rule of law, hinders economic competition. In such a situation, i.e. in a limited access social order, part of property rights remains unprotected, which prevents the entrepreneur from performing his/her function. The reason for this effect is the desire of the elite to maintain the status quo in distribution of rents: they try to avoid changes caused by the market process that may lead to a violation of existing political balance. In this study, the stated theses are confirmed on microdata of the BEEPS industrial enterprises survey by the European Bank for Reconstruction and Development - we test the hypotheses using stochastic frontier analysis (SFA) and discrete choice models. Empirical analysis allows us to argue that in the limited access order, the obstacle to participation in economic competition is a weak property rights protection - it forces firms to compete for limited resources not by satisfying the needs of consumers, but by following the interests of the property rights guarantor. The results of the study can be useful in developing competition policy measures and explaining the phenomenon of «regulatory bias» in antitrust policy of developing countries.

Another look at data challenges in property valuation practice: a case of Lagos property market

PurposeChallenges of property data in developing markets have been reported by several authors. However, a deep understanding of the actual nature of this phenomenon in developing markets is largely lacking as in-depth studies into the actual nature of data challenge in such markets are scarce in literature. Specifically, the available literature lacks clarity about the actual nature of data challenges that developing markets pose to valuers and how this affects valuation practice. This study provides this understanding with focus on the Lagos property market.Design/methodology/approachThis study utilises a qualitative research approach. A total of 24 valuers were selected using snowballing sampling technique, and in-depth semi-structured interviews were conducted. Data collected were analysed using thematic analysis with the aid of NVivo 12 software.FindingsThe study finds that the main data-related challenge in the Lagos property market is the lack of database of market property transactions and not the lack or absence of transaction data as it has been emphasised in previous studies. Other data-related challenges identified include weak property rights institution with attendant transaction costs, underhand dealings among professionals, undocumented charges, undisclosed information, scarcity of data relating to specialised assets and limited access to the subject property and required documents during valuation. Also, the study unbundles the factors responsible for these challenges and how they affect valuation practice.Practical implicationsThe study has implication for practice in the sense that the deeper knowledge of data challenges could provide insight into strategy to tackle the challenges.Originality/valueThis study contributes to the body of knowledge by offering a fresh and in-depth perspective to the issue of data challenges in developing markets and how the peculiar nature of the real estate market affects the nature of data challenges. The qualitative approach adopted in this study allowed for a deep enquiry into the phenomenon and resulted into an extended insight into the peculiar nature of data challenges in a typical developing property market.

Property Rights and Firm Scope

The voluminous strategy research on the determinants of corporate scope is often premised on a well-established property rights regime, which contrasts with the weak property rights protection that still characterizes most countries today. We address this gap by applying property rights theory to theorize and empirically examine how the strengthening of the property rights regime affects corporate scope. Our analysis exploits the enactment of a property law that enhanced the formal protection of private properties in China as a quasi-experiment. We show that with a strengthened property rights regime, the horizontal relatedness among private firms’ businesses increases, but their vertical relatedness decreases, compared with state-owned firms. Further, these effects are less prominent for politically connected firms that are afforded informal protection of property rights. Our findings shed new light on the property rights regime as a critical determinant of firms’ horizontal and vertical scope.

The Economics of Tropical Deforestation

Two factors have elevated recent academic and policy interest in tropical deforestation: first, the realization that it is a major contributor to climate change; and second, a revolution in satellite-based measurement that has revealed that it is proceeding at a rapid rate. We begin by reviewing the methodological advances that have enabled measurement of forest loss at a fine spatial resolution across the globe. We then develop a simple benchmark model of deforestation based on classic models of natural resource extraction. Extending this approach to incorporate features that characterize deforestation in developing countries—pressure for land use change, significant local and global externalities, weak property rights, and political economy constraints—provides us with a framework for reviewing the fast-growing empirical literature on the economics of deforestation in the tropics. This combination of theory and empirics provides insights not only into the economic drivers and impacts of tropical deforestation but also into policies that may affect its progression. We conclude by identifying areas where more work is needed in this important body of research.

Expropriation Risk and Investment: A Natural Experiment

Abstract This article uses the enactment of China’s 2007 Property Law (the Law), which reduces the risk of expropriation by local governments, as the setting to investigate the importance of property rights protection for private firm investment. Using propensity score matching and a difference-in-differences design, we find that firms facing weaker property rights protection prior to the Law significantly increase their investment and investment efficiency after the Law. Cross-sectional analyses document evidence consistent with a decrease in firms’ perceived expropriation risk as the main mechanism underlying the Law’s effect. Finally, we show that the Law improves local economic outcomes and employment.

Characteristics of Litigated Patents in Weak Intellectual Property Rights Regimes

Characteristics of Litigated Patents in Weak Intellectual Property Rights Regimes

Resource management in fisheries under different types of externalities in a two-country general equilibrium model of international trade

Open access resource problems and harmful pollutants from manufacturing activities are common in resource management practices. Nevertheless, their implications have only been studied in different and separate frameworks that are not covered within the same structure. Previous studies suggest that resource management enforced by one country can increase welfare levels and rebuild resource conservation, compared to the case where no country imposes resource management policies. However, in real-life examples, the harvesting and manufacturing industries exert simultaneous pressure on fishery resource stocks, thereby changing the nature of the supply curve of renewable resources. This study investigates the effects of trade liberalization under unilateral resource management regimes in a two-country, two-sector model, in which both production sectors can detrimentally affect renewable natural resources by generating two interacting environmental burdens: excessive harvesting and industrial pollution. It is demonstrated that unilateral resource management applied by a country in which the resource-good sector is relatively less damaging to fishery stocks is welfare-reducing for both countries compared to the situation where neither manages its resource sector. This result is identified as “immiserizing resource management.” Notably, however, unilateral resource management by one country in which the resource-good sector has a more significant negative impact than the manufacturing industry can benefit both trading partners in welfare terms; this is referred to as “improving resource management.” Policymakers in international organizations should consider the relative dominance of externalities in the presence of weak property rights before requiring resource management as a condition for participating in international trade.

Corporate corruption and future audit fees: Evidence from a quasi-natural experiment

Using a difference-in-differences estimation that relies on China’s anti-corruption campaign as a regulatory shock, we report that an exogenous reduction in firm-level corruption leads to lower future audit fees. Further triple difference analyses reveal that the decrease in future audit fees is more significant for firms operating in regions with weak legal environments, strong government control, and weak property rights protection. Government subsidies and related party transactions are channels through which the anti-corruption campaign affects future audit fees. Compared to previous literature, we conclude the effect of corruption on future audit fees is causal.

A Range of Informality Across Cities and Slums: Understanding Precarity in Patna’s Slums Before and During the COVID-19 Pandemic

This article proposes a framework for understanding why slum residents are particularly vulnerable to economic downturns. We centre evidence from Bihar’s capital city, Patna, to examine how downturns are experienced more severely in some cities and slums than others. We argue slums are zones of pervasive informality, remaining largely disconnected from formal institutions and dependent on discretionary supports. But the extent of informality, and vulnerability, varies within and across cities. Relative to those in the cities we compare to, Patna’s slum residents are poorer, less upwardly mobile and have weaker property rights and shallower institutional connections. We argue this makes them particularly vulnerable to downward shocks and we present evidence from the case of the coronavirus pandemic to show that they experienced this disaster particularly severely. Our results have important policy implications: in general, slum residents require greater policy and institutional support, but there is important variation in their vulnerability and needs within and across cities. Moreover, while most research on slums focuses on mega- and first-tier cities, we emphasize the urgent need for more attention to second- and third-tier cities—where the degree of informality, and consequently, the vulnerability to downward spirals, can be greater.

An Islamist economic habitus: Islamist-affiliated businesses in Egypt

The post-2013 crackdown on Islamist-affiliated businesses in Egypt offers a unique glimpse at the Islamists’ economic assets and activities. How could affiliates of the Islamist movement in Egypt accumulate so many assets and become significant market actors since the 1970s despite periodic state hostility and weak property rights protection? I argue that belonging to the Islamist movement endowed affiliated entrepreneurs with an economic habitus. This mode of embeddedness allowed the conversion of organisational, symbolic and social capital from the socio-religious and cultural fields into the market field. However, the Islamist habitus was tension-ridden, hence conflicted, in two principal aspects. It was marked by embeddedness as much as boundedness for the affiliated entrepreneurs. One source of tension was introspective about the actual and perceived (in)compatibility between business activities and the ideological mission of the movement. The other was extrospective related to the power relations with periodically hostile state authorities.

Property rights, transaction costs, and the limits of the market

To clarify the determinants and interaction of property rights and transaction costs, I study the design of the property rights on either a good whose consensual transfer entails a transaction inefficiency or an upstream firm’s input whose random cost is nonverifiable and ex ante non-contractible. More disperse traders’ valuations and larger odds that the upstream party can appropriate the quasi-rent induced by contract incompleteness produce more severe transaction inefficiencies and larger incomplete contracting costs, respectively. Larger transaction costs, in turn, induce weaker property rights because of the trade-off between inefficient exclusion from trade/innovation and expropriation. These implications survive when some transactors have more political influence on institutional design, or I consider the disincentive effect of weak property rights. Furthermore, they are consistent with the interplay among proxies for the availability of technological progress, severity of transaction costs and strength of property rights for 139 countries observed between 2006 and 2018.

КОНФЛИКТЫ МЕЖДУ РЕГИОНАЛЬНЫМИ БИЗНЕСМЕНАМИ И ГЛАВАМИ РОССИЙСКИХ РЕГИОНОВ: РОЛЬ ИДЕНТИЧНОСТИ

The article explores the potential of the constructivist approach for understanding elite interactions in non-democratic political regimes by examining the case of public conflicts between regional entrepreneurs and governors in Russia. In conditions of weak property rights, conflicts with the authorities often threaten the existence of businesses and challenge the possibility of deriving material benefits from the positions of power held by entrepreneurs. Conflict behavior contradicts the imperatives of profit and rent maximization and often endangers the personal freedom of entrepreneurs, not to mention their business assets. The article examines the value of the concept of identity in explaining conflictual behavior, which can be considered as deviating from assumed economic rationality. Based on the methodology suitable for studying ideational factors of political outcomes and on the empirical material on conflicts between regional entrepreneurs and regional governors in Russia, it is shown that in the context where economy and politics are closely intertwined, assuming entrepreneurial identity and attributing economic rationality to business owners can be misleading. Salient political identities, formed by both formal and informal institutions, drive political action that cannot be reduced to rational choice models, and its goals contradict commonly assumed motives of profit and rent maximization.

From imitation to innovation: examining the technology-related change process in a transitioning Chinese economy

This article examines a technology-related change process in a transitioning Chinese economy by identifying the pressures for deinstitutionalization and the moderating factors that affect a practical example of its implementation. The analysis is underpinned by the Cunningham (2002) model of organizational change, and the study focuses on the case of ANTA Sports Products Ltd., a Chinese sporting goods manufacturer undergoing an organizational change from imitation to innovation. Data were gathered from official and semiofficial documents and four semistructured interviews. The main findings are as follows: (1) a glut of low-end products, Chinese consumers’ positive technology readiness and growing sense of Chinese patriotism, and internal political pressures were particular stressors for ANTA; (2) tax preferences provided ANTA with a strong motive to promote its change process, while weak intellectual property rights and institutional protections had the opposite effect; and (3) ANTA’s access to affordable resources, the CEO’s determination, the elimination of the alternative, and the dependence upon consumers for resources ensured its successful implementation of organizational change.

Cross‐cultural implications of linguistic future time reference and institutional uncertainty on social entrepreneurship

AbstractResearch SummaryUsing a sample of 205,792 individuals in 70 countries with 39 languages, this paper presents novel empirical evidence for how a language's future time reference, defined as the requirement that speakers mark time in the future, affects a speaker's likelihood of engaging in social entrepreneurship. FTR subtly shapes a speaker's temporal orientation, such that speaking a futured language (i.e., strong FTR) favors a short‐term orientation which positively affects the likelihood of being a social entrepreneur. Furthermore, institutional uncertainty arising from weakly entrenched institutions moderates this relationship. Individuals who speak futured languages in contexts characterized by regulatory institutional uncertainty (weak rule of law, weak property rights, and strong corruption) are more likely to engage in social entrepreneurship. Theoretical and practical implications and future research directions are discussed.Managerial SummaryThis paper examines the influence of language and regulatory institutions on an individual's decision to engage in social entrepreneurship. We show that entrepreneurial strategies towards social value creation are more likely to be pursued in countries where language is characterized as futured (i.e., using sentences with “will/shall + infinitive”) with the linguistic feature of future time reference (FTR). Moreover, the positive impact FTR has on the strategic decision to become a social entrepreneur intensifies when there is regulatory institutional uncertainty. That is, the probability an individual is a social entrepreneur increases when there is weak rule of law, weak property rights, and strong corruption within a country. In sum, our study highlights the important interplay between language, an overlooked cognitive institution, and regulatory institutions in shaping entrepreneurial behaviors and social outcomes.

Fair Market Constitutionalism: From Neo-liberal to Democratic Liberal Economic Governance

Abstract Neo-liberalism was in crisis well before COVID-19; and COVID-19 has only further highlighted the gaps and fault lines in existing liberal democratic models. But this does not mean that we should walk away from liberal ideals, or the general idea of globalisation or market-based forms of ordering. Instead, we should seek a new, more ‘democratic’ or pro-social understanding of the liberal ideal, which emphasises the idea of fair rather over free markets. This idea of fair markets can be understood in numerous ways, but I suggest that it is best understood as entailing a commitment by the state to: (i) guaranteeing access to a public baseline of core goods, or access to a generous social minimum to all citizens, regardless of market outcomes; (ii) ensuring equality of access to certain ‘relative goods’; (iii) regulating market power or sources of monopoly power; and (iv) responding to or ‘internalising’ negative externalities or social costs associated with private market behaviour. The article explores what this entails for the design of constitutions, and especially constitutional property and social rights, and the scope and strength of judicial review. Ultimately, the article suggests, fair market constitutionalism points to the desirability of a combination of weak property and social rights—ie property rights that offer some but not complete protection for existing economic entitlements, coupled with legislative duties to implement fair market norms or limited weak social rights guarantees. But this does not mean that such guarantees can only be weakly enforced by courts: blockages in the democratic process may mean that courts can and should adopt a weak–strong—or responsive—approach to enforcing these fundamentally weak rights guarantees.

Oiling up the field. Forced internal displacement and the expansion of palm oil in Colombia

Widespread analysis of the link between natural resources and conflicts has shown how positive income shocks in agriculture usually reduce violence (opportunity cost effect), while positive shocks in extractive commodities intensify it (rapacity/lootability effect). However, recent works have found cases where positive income shocks in agriculture lead to more violence. We examine the expansion of palm oil in Colombia to document another case where higher expected profits in agriculture led to more violence. Furthermore, we explore the institutional framework that explains the direction of this effect. Using a difference-in-difference strategy, we find that a 1 log point increase in palm oil prices raises the forced internal displacement rate in palm municipalities by 0.42 standard deviations. We show evidence supporting the hypothesis that the need for new lands explained the violence linked to the palm expansion within a framework in which weak property rights and illegal institutions were predominant. Likewise, we shed light on how the institutional framework shapes the relationship between income shocks and conflict.

Oil and property rights

We investigate the role of oil in economic institutions for a sample of 150 countries between 1960 and 2014. We find that higher per capita values of oil production result in weaker economic institutions in the form of lower levels of private property rights protection. This result is robust to alternative instrumental-variable approaches as well as different operationalizations of oil income and production as well as economic institutions. We argue that our finding is indicative of oil interest groups using their economic power to achieve weaker property rights to maintain their economic-political position in society. We also provide evidence that oil induces clientelism, corruption and the repression of dissenting political voices. We argue that this finding is consistent with the idea that oil interest groups translate their outsized economic into political power through these transmission channels to achieve lower levels of property rights protection.

Politically Connected Owners

Political connections provide substantial benefits to firms. We emphasize the ownership of firms as an important channel through which political connections operate and identify a resulting link between political turnover and turnover in the ownership of firms: Political turnover prompts newly politically connected individuals to take, and newly disconnected individuals to cede, ownership of firms. This pattern should be more pronounced in countries with weaker property rights, among firms with publicly recorded owners, and among firms with more immobile assets. Moreover, firms that experience changes to ownership during periods of political turnover should have elevated political connections and therefore pay less taxes and earn higher profits. Analyses of the ownership structure of firms in 87 countries are consistent with the theory. Because politically connected owners allow firms to compensate for other vulnerabilities, the theory also explains mixed findings in prior work on the consequences of asset immobility.