Saturday, February 2, 2008

Property Rights and Development

Informal (unregistered) property in Egypt, according to De Soto, is valued at $241 billion – an amount comparable to 55 times the foreign direct investment that the country received over the last 200 years (including Suez Canal and Aswan Dam), or 30 times the size of the Cairo stock exchange. This, of course, is according to De Soto.

Currently, De Soto travels the world, including Egypt, advising governments on how to facilitate property registration processes. He says that more properties will be registered formally when the property registration process is easier – thus giving opportunity for more domestic investment to appear in correlation with greater access to finance (using the registered property as collateral).

Erica Field, a scholar on Harvard’s economic faculty has released a pilot study looking at this supposed correlation. She found that, in the homeland of De Soto – Peru, property rights do not necessarily lead to further access to credit. In situations of poverty, the relationship between property rights and credit access as proposed by De Soto is not certain because of other significant barriers to lending such as education, age, employment status, lending behavior, and credit rationing. Her main results show that property rights, alone, do not enhance investment behavior or even access to credit.

Field’s research, however, has certain limitations. For instance, she applied it in one country only. Evidence from different countries may lead to different conclusions. On the other hand, supporting De Soto’s argument might require a global empirical dataset that could at least show that simpler property registration processes are associated with less informal capital.

-Cashing In on Property Rights

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