DP3270 | Governance and Growth

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Publication Date

20/03/2002

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Abstract

Because of its inappropriability, protection of property rights is widely recognized as being the state?s responsibility. Moreover, recent empirical evidence suggests that it leads to higher investment levels and faster growth. Nevertheless, the extent of property rights protection differs significantly across countries. This Paper endogenizes the emergence of property rights within a simple growth framework. Drawing on North (1990), we present a model where economic performance and enforcement of property rights may reinforce each other. Depending on initial conditions, the economy can converge to a high-income or a low-income steady state. The existing empirical evidence seems to offer a tentative support for this theory.