The price of property rights: Institutions, finance, and economic growth

Ron Alquist, Benjamin R. Chabot and Ram Yamarthy

Journal of International Economics, 2022, vol. 137, issue C

Abstract: Using a unique data set of foreign equities traded on the London Stock Exchange (LSE) in the late 19th century, we study the relation between the security of property rights, finance, and growth. We find that British investors demanded a higher equity cost of capital from firms operating in countries with weak property-rights institutions. Further, country-level expropriation risk is negatively related to 19th-century capital flows and present-day economic and financial development. A simple equilibrium model of the protection of investor property rights and risk premia rationalizes these findings. This evidence indicates that institutional quality influences growth, in part, through its effect on the cost of capital and investment.

Keywords: Institutions; Property rights; Cost of capital; Economic growth; Financial development (search for similar items in EconPapers)
JEL-codes: F36 G15 O16 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:137:y:2022:i:c:s0022199622000265

DOI: 10.1016/j.jinteco.2022.103594

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