Property Rights, Governance, and Economic Development

• Author: Costas Azariadis,Jan U. Auerbach
• Published date: 01 May 2015
• Date: 01 May 2015
• DOI: http://doi.org/10.1111/rode.12138

Property Rights, Governance, and Economic

Development

Jan U. Auerbach and Costas Azariadis*

Abstract

In this review article we give an intuitive account of why good institutions in general, and secure property

rights in particular, matter for economic growth and development. We also discuss implications for good

governance, defined as the efficient provision of property rights and other aspects of governance. Finally,

we briefly touch on political institutions that might be conducive to good governance and thus economic

development.

1. Introduction

In this review article, we give an account of why secure property rights, and good gov-

ernance in general, matter for economic growth and development. We argue that, in

order to understand economic development, we have to understand how secure prop-

erty rights are established and why some societies might choose not to do so. Property

rights are rights to physical or intellectual property that determine who can use, alter,

sell or capture the payoffs accruing to it. If property rights are well enforced and thus

secure, then individuals are safe from the expropriation of their resources by other

agents or authorities. We focus on appropriation activities, i.e. activities that solely

redistribute resources but are otherwise unproductive. A non-exhaustive list of such

activities includes simple property crime and outright theft, extortion, fraud, as well as

corruption. From an individual’s point of view, expropriation can be thought of in a

broader sense as anything that hinders a person from reaping the returns on their

investment, including even homicide. We also discuss implications for good govern-

ance, that is, of economic institutions that enforce property rights. Finally, we briefly

touch on political institutions that might be conducive to good governance and thus

economic development.

Economic institutions in general and the security of property rights in particular

differ across countries at a point in time and within countries across time. There

seems to be a consensus that secure property rights matter for economic outcomes

(see, e.g. Acemoglu et al., 2005). Many scholars have provided investigations into the

importance of institutions for economic development and growth. Representative

examples are Knack and Keefer (1995) and Barro (1996). They find strong evidence

that property right institutions are of major importance in determining economic

growth. Easterly and Levine (2003) report evidence that endowments affect long run

economic outcomes through institutions only. Similar results are presented in

Acemoglu and Johnson (2005) and Acemoglu et al. (2005). Rodrik et al. (2004) argue

that institutions are the single most important determinant of development. We

* Azariadis: Department of Economics, Washington University, St Louis, MO 63130-3629, USA. E-mail:

azariadi@wustl.edu.Also affiliated to Federal Reserve Bank of St. Louis. Auerbach: University of Exeter

Business School, Streatham Campus, University of Exeter, Exeter EX4 4ST, UK.

Review of Development Economics, 19(2), 210–220, 2015

DOI:10.1111/rode.12138

© 2015 John Wiley & Sons Ltd