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Explaining the effect of financial development on the quality of property rights

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  • Chandramouli Banerjee
  • Niloy Bose
  • Chitralekha Rath

Abstract

Empirical evidence suggests that financial development can catalyze property rights reforms. This paper offers a theory of financial markets to explain these facts defining the relationship. The explanation is based on a simple trade‐off between the costs and the benefits of securing property. Securing the right to property at a cost allows agents to post collateral against loans. However, the benefits of collateral vary according to the existing credit market conditions, which we take into account in the tradeoff between the costs and the benefits of securing property rights along the path of financial development to explain the conditions under which financial development can create incentives for better property rights institutions.

Suggested Citation

  • Chandramouli Banerjee & Niloy Bose & Chitralekha Rath, 2019. "Explaining the effect of financial development on the quality of property rights," Review of Development Economics, Wiley Blackwell, vol. 23(2), pages 957-974, May.
    • Handle: RePEc:bla:rdevec:v:23:y:2019:i:2:p:957-974
    DOI: 10.1111/rode.12580
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    Cited by:

    1. Khalid, Usman & Shafiullah, Muhammad, 2021. "Financial development and governance: A panel data analysis incorporating cross-sectional dependence," Economic Systems, Elsevier, vol. 45(2).

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