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Reforming Property Rights Institutions in Developing Countries: Can FDI Inflows Help?


  • “I would like to thank participants of the CSAE (Oxford University) 25th Anniversary Conference on “Economic Development in Africa,” participants of the first NOVAFRICA conference on “Economic Development in Africa,” participants of the international workshop on the “Determinants and Effects of Trade and Foreign Direct Investment in sub-Saharan Africa,” and an anonymous referee for fruitful comments. All errors and inaccuracies are mine. The views expressed here are those of the author and not of his affiliated institution.”


This paper analyses factors that can facilitate property rights institutions reform in developing countries (DC). Inspired by the works of North and Weingast (Journal of Economic History, 49, 1989, 803) and Acemoglu et al. (American Economic Review, 95, 2005a, 546; 2008) relating to the process of institutional reforms in England during the seventeenth century, I assume that FDI inflows could contribute to property rights reform in DC that are initially endowed with a minimum of effective institutions of constraints on the executive (i.e. effective institutions of checks and balances). Using five-year panel data over the period 1970–2005 with a sample of 80 DC, and after correcting for endogeneity, I find that conditioned on the initial level of constraints on the executive, the effect of FDI inflows on the probability of reforming property rights is positive and significant. The minimum level of constraints on the executive necessary for the catalytic role of FDI inflows in reforming property rights institutions is 3.6. Only 20 out of the 80 DC in the sample have this minimum level of constraints on the executive. Among the 20 countries five are in sub-Saharan Africa.

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