Property rights and economic growth

April 4, 2007

Free Market Foundation

According to the Property Rights Alliance’s (PRA) International Property Rights Index (IPRI), there is a direct correlation between the economic well being of a country and its commitment to physical and intellectual property rights.

Consider:

The nations attaining the highest scores in the IPRI Ranking are advanced industrialised countries from Northern Europe, particularly Scandinavia; Norway obtains the highest score of the 70 countries rated.

The bottom quartile of the IPRI predominantly includes countries from Africa and Latin America but also Russia and other Central European nations; the weakest performing country of the study sample is Bangladesh.

The average rank for the whole study’s country set is 5.3, on a scale from 0 (weakest property rights protection) to 10 (strongest protection) the highest score obtained is 8.3, while the lowest score is 2.2.

Countries in the top quartile of the IPRI ranking have an average gross domestic product (GDP) per capita of $32,994, more than seven times higher than countries which rank in the bottom quartile.

Overall, as the data show, the shortage of suitably established property rights and rule of law is detrimental to a nation’s social and economic development and subsequently, its relations with other countries, says PRA. The effects:

Not only will a weakened structure lead to a consequent lack of trust in the legal property system, which further encourages informal market activity (black markets), but it also negatively influences investment decisions by an investor or multinational interest for fear of a lost return.

The degree to which intellectual property is protected also highly influences a country’s inventive character as it shapes the flow of innovative ideas and products that are developed, which in turn affects creative and economic wealth.

Source: Alexandra C. Horst, International Property Rights Index (IPRI) 2007 Report, Property Rights Alliance.

For report:

For more on International Issues:

FMF Policy Bulletin/ 27 March 2007