On Property Rights and Economic Development

India is ranked 46th alongside Costa Rica, Kuwait and Slovenia. Finland has secured the first rank and Bangaldesh is given the last rank in the IPRI 2009 report.

Property rights is an issue that all scientists, social scientists and others have had to think about directly or indirectly in their lives. It is property rights that we are talking about when a new product is introduced, a new book is released, two siblings fight over their father’s property, people are displaced from land which they had considered to be their own, prime agricultural land is handed over to giant companies, etc. This post questions the notion that property rights ’causes’ economic development by focusing attention on the International Property Rights Index (IPRI) 2009 report.

The 2009 IPRI shows that economic growth is intimately related to ownership. Such a statement is derived from a positive correlation that is seen to exist between a country’s protection of both physical and intellectual property rights and its economic well-being. In order to analyse this claim, the post looks at concepts such as economic growth, ownership and correlation.

Property rights is considered to be fundamental to all human rights. Of course, lack of property rights makes governance difficult and also makes business cumbersome. But, one needs to understand the history of ‘property rights’ or ‘ownership’. This is where Karl Marx can aid us. It is the forced separation of the labourer from his means of production that led to the emergence of ‘private property’. In Das Kapital Volume I, Marx talks of the brutal and coercive policies that were carried out so as to divorce workers from their land. This is a section which all students who are concerned about property rights must read.

Economic Growth
There is an increasing tendency to equate economic growth with economic well being. Though, very often rates of economic growth surge without any ‘real’ improvement in the livelihood of the populace. Economic growth is to be understood as the rate of growth of GDP in a country over a period of time. At times, per capita GDP is used in the calculation. Which ever definition is used, one must always keep in mind that they are only statistical indicators, which are arrived at on the basis of a lot of assumptions. This is not to say that such indicators are useless or meaningless, but rather to emphasise their power in framing policies. Hence, the need to use them with utmost caution.


It is alarming when correlation analysis provides ‘scientific support’ to causation. Such instances are in plenty within the discipline of Economics. Economics as a discipline tries to identify cause and effects so that appropriate policies can be framed. But, causation is a philosophically challenging concept. Philosophers still grapple with it and will continue to do so. However, economists seem happy to be talking about causes and effects by making use of just correlation!

Positive correlation between IPRI and GDP per capita
Source: IPRI 2009 Report

How can one conclusively establish that it is property rights which leads to high GDP per capita’ Couldn’t it be possible that it is the high per capita GDP that is resulting in stronger property rights’ Is it is on the basis of statistical correlation that property rights are considered to be a significant factor for economic growth’

Author: Alex M Thomas

A passionate student of economics!

6 thoughts on “On Property Rights and Economic Development”

  1. Alex, Good to see that you are back with ‘food for thought’ .
    You are absolutely right.

    Correlation only signifies association and does not prove causality.Even if causality existed in truth,from such an analysis, we can never conclude what was the primary cause. You rightly pointed that out by asking ‘Couldn?t it be possible that it is the high per capita GDP that is resulting in stronger property rights?’

    There is another possibility which can be considered.Both ‘property rights’ and ‘economic growth’ could be effects of some other cause.

    For example if I studied heights of siblings in different families,I might find a positive correlation.In such a case I cannot say my height was the cause for my sister’s height or her height was the cause for mine.All of us know both our heights are probably due to the DNA we inherited and quality of food we ate at home!(unstudied/unknown factors)

  2. Yes, those statistics don’t illustrate causation. However, I don’t think any countries have become rich and then abandoned communal and government owned property. Nations first embrace private property rights then produce wealth. To still imply mere correlation, the argument would have to be made that countries expect higher wealth and thus, for whatever reason, switch to private property.

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