What determines protection of property rights?: an analysis of direct and indirect effects
Meghana Ayyagari, Aslı Demirgüç-Kunt, Vojislav Maksimovic, World Bank. Development Research Group. Finance
World Bank, Development Research Group, Finance Team, 2006 - Law - 54 pages
Using cross-country data, the authors evaluate historical determinants of protection of property rights. They examine four historical theories that focus on conceptually distinct causal variables believed to shape institutions: 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. The authors 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.
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algorithm Ayyagari Catholic Ethnic Fractionalization Catholic Religion Common Causal Markov Condition Common Law countries Common Law Latitude conditional correlations conditional independence relations conditioning information set country scaled cumulative distribution function DAG analysis determinants of property Directed Acyclic Graphs dominant religious group Economic edges endowment view Ethnic Fractionalization Latitude Extreme Bounds Analysis Figure 3A Fractionalization and Catholic government enforces laws Heritage Foundation higher numbers indicating historical determinants indicating better enforcement Latitude and Ethnic laws that protect legal origin legal traditions Lopez-de-Silanes Lower Extreme Bound null hypothesis numbers indicating better outcome variable p-values Porta predictor of Property property rights protection Property Rights regression protect private property protection of property quintiles randomly selected individuals regression analysis regressors robust predictor Robust Robust Robust Sala-i-Martin scaled between zero Scandinavian civil law Shleifer significance level specifications t-stat Table takes the value tests TETRAD Tier 2 consists undirected graph upper extreme bound weighted mean