Property Insecurity, Conflict, and Long-Run Growth
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Property Insecurity, Conflict, and Long-Run Growth*
Terra Lawson-Remer
The New School
Graduate Program in International Affairs
lawsonrt@newschool.edu
This Draft
May 2011
Abstract: Whose property rights are secure and insecure matters fundamentally for
the political and economic implications of expropriation risk. Using a new set of
indicators that measure the property insecurity of ethno-cultural minority groups, this
article demonstrates that property insecurity of ethno-cultural minorities does not reduce
long-run growth; that the severity of property insecurity for the worst-off group in a
country is strongly related to the onset of armed conflict; and, controlling for civil war,
property insecurity for ethno-cultural minorities is actually associated with higher growth
rates. Economic growth can occur when the property rights of elites are secure but
marginalized minorities face high a risk of expropriation, as land may be reallocated into
the hands of investors with skills and access to capital. However, the potentially growth
enhancing effect of forced displaceme nt and resettlement is reduced because the
property insecurity of mi norities also increases the likelihood of armed conflict.
*The author is grateful for helpful comments from Dalton Conley, Kevin Davis, William Easterly,
Augustin Fosu, Daniel Klerman, Nathan Nunn, Nicola Persico, Sam Popkin, and David Trubek;
for research support from the United Nations World Institute for Development Economics
Research (UNU-WIDER); and for capable research assistance from Lauren Schmitz and
Cameron Brinitzer.
11 Introduction
"I haven't time to tell you what emotions we experience in traversing this half-
wild, half-civilized country, in which fifty years ago were to be found
numerous and powerful nations who have disappeared from the earth, or
who have been pushed back into still more distant forests; a country where
are to be seen, rising with prodigious rapidity, new peoples and brilliant cities
which pitilessly take the place of the unhappy Indians too feeble to resist
them. Half a century ago the name of the Iroquois, of the Mohawks, their
tribes, their power filled these regions, and no w hardly the memory of them
remains. Their majestic forests are falling everyday; civilized nations are
established on the ruins..."
– Gustave de Beaumont, New York, 1830
Tocqueville in America (1938)
Perhaps you have heard of us. We are Mexican, mostly indigenous, and we
took up arms on January 1, 1994 demanding a voice, a face and a name for
the forgotten of the earth. Since then, the Mexican government has made
war on us, pursues and harasses us seeking our death, our disappearance
and our absolute silence. The reason? These lands are rich with oil, uranium
and precious lumber. The government wants them for the great transnational
companies. We want them for all Mexicans. The government sees our lands
as a business. We see our history written in these lands. In order to defend
our right (and that of all Mexicans) to live with liberty, democracy, justice and
dignity we became an army and took on a name, a voice and face.
– Subcomandante Marcos, Juana Ponce de León,
April 1999, Letter to Mumia Abu Jamal
A vast and significant body of scholarship, dating back at least to Adam Smith (1776),
has long held secure private property rights to be a fundamental prerequisite for trade,
labor specialization, efficient investments, liberty, government accountability, growth-
promoting economic policies, functioning markets, and myriad other necessary engines
of economic growth.
Yet, historically, economic development has often involved the expropriation of land and
resources from ethno-cultural minorities, and the reallocation of these resources into the
hands of elites. The widespread establishment of small freehold farms for white settlers
2across the United States in the 18 th and 19th centuries required displacing the
Cherokee, Creek, Seminole, and Choctaw tribes, who were either killed or forced into
marginal land. Dispossession was official government policy. Congress passed the
Indian Removal Act in 1830; by 1840 over 50,000 Native Americans had been forcibly
relocated from the American Southwest, opening 25 million acres for settlement
(Thornton 1984). The widely lauded security of property rights enjoyed by yeoman
American farmers in the 19 th century (Engerman and Sokoloff 1997, 2002) was made
possible by insecure property rights for Native Americans.
At the same time, expropriation of land and resources from marginalized groups can
increase the likelihood of armed conflict. Insecure property rights are often the source
of anti-government grievances, motivating dispossessed groups to rebel. Chiapas
provides the rest of Mexico with essential resources, including oil, timber, cattle, corn,
sugar, coffee, and beans (Collier and Quaratiello 1999). The Zapatista uprising in
Chiapas throughout the 1990‘s may be traced in part to the accelerating loss of
communal land tenure rights and displacement of indigenous groups by more politically
connected local caudillos, who were seeking to exploit these valuable resources
commercially (Collier and Quaratiello 1999; Harvey 2005, 1998).
Reconciling the apparent contradiction between property rights theory and actual
historical economic development trajectories requires recognizing that whose property
rights are secure matters fundamentally for the political and economic implications of
expropriation risk.
This article applies a new set of indicators that measure the property insecurity of ethno-
cultural minority groups to re-examine the cross-country research on property rights,
growth, and conflict. Much recent cross-country property rights research relies on
indicators that efface the heterogeneity in property rights enjoyment within countries
(Acemoglu and Johnson 2005; Rodrik, Subramanian and Trebbi 2004; Bockstette,
Chanda and Putterman 2002; Acemoglu, Johnson, Robinson 2001, 2002; Kaufmann,
Kraay and Zoido-Lobaton 1999; Hall and Jones 1999; Clague, Keefer, Knack and Olson
31999; Knack and Keefer 1995). A one-dimensional conception of property rights ignores
the significant variation in risk of expropriation faced by different ethnic, cultural, and
religious groups in the same country. This article presents and utilizes an alternative
Property Insecurity Index, specifically designed to evaluate the security of property
rights enjoyed or not enjoyed by ethno-cultural minority groups.
In many countries, members of marginalized groups face significantly higher property
insecurity than foreign investors and domestic elites. Cross-country data since 1980
reveals that the property insecurity of ethno-cultural minorities does not reduce long-run
growth, and that severe property insecurity for the worst-off group in a country is
strongly related to the likelihood of armed conflict. In addition, controlling for civil war,
the property insecurity of minority groups is actually associated with higher growth rates.
Economic growth can occur when the property rights of elites are secure but
marginalized minorities face a high risk of expropriation, because land is reallocated into
the hands of investors with access to capital. However, the potentially growth
enhancing effect of forced displacement and resettlement is mitigated because the
property insecurity of minorities is also correlated with conflict, which reduces growth.
Succinctly stated, property insecurity of non-elites can be compatible with or even
enhance economic growth, but also encourages conflict—which can undermine long-
run growth and economic development.
2 Background
The conventional wisdom has long held that secure private property rights are a critical
ingredient of economic growth. Yet property rights are not homogenous; protecting the
property entitlements of some inherently requires preventing others from claiming and
controlling those same resources (Rousseau 1754). Because political power
determines the scope, allocation, and enforcement of property rights (Libecap 1989;
Alston 1996; Wyman 2005; Alston, Harris, and Mueller 2009), ―strengthening‖ private
property rights can benefit elites while denying those without power access to formerly
shared resources—generating significant property rights insecurity for marginalized
4groups (Hay 1975, Chibber 2003, Davis 2004). In many countries, property rights
insecurity for less politically or economically powerful minority groups exists alongside
secure property rights for those with the political and economic capital to influence the
allocation and enforcement of property rights entitlements, including, in different
contexts, majority groups, foreign investors, and domestic elites.
What actually matters for growth and economic development is property rights security
for those with political voice and access to capital.
At a macro level, a number of Western political theorists argue that private property
protects liberty, thereby generating government accountability and growth-enhancing
economic policies (Hayek 1976, Ellickson 1993). In this view, individuals are more likely
to make demands on governments when they know their livelihoods are not at risk. The
resulting political accountability to a broad cross-section of the population encourages
governments to implement economic policies that benefit society as a whole, such as
investing in education, roads, and other public goods (Engerman and Sokoloff 1997,
2002, 2005). Whose property rights are secure matters in this macro relationship
between property rights and economic growth, as only property rights security for those
who will use their political voice to agitate for growth enhancing economic policies is
needed for economic development.
At a micro level, secure private property rights generate economic growth for three
reasons. First, by increasing the efficiency of investment and resource consumption
because the users/investors—the owners—are able to internalize all costs and benefits
(Demsetz 1967, Hardin 1968). Second, by facilitating market exchange since
transaction costs are lower with a single owner than with multiple owners, enabling
resources to be allocated to the most efficient users (Coase 1960). And third, by
expanding access to credit and the ability to convert assets to capital because
underlying collateral makes repayment commitments more enforceable (De Soto 2003).
Markets, credit access, and efficient investment enable specialization and gains from
5trade, provide capital for reinvestment, and increase productivity—all driving economic
growth.
Property security for whom matters again in these micro theories, as only security for
those with skills, knowledge, and financial capital generates economic growth. Access
to appropriate capital is required under the internalization-of-costs-and-benefits
rationale for secure private property rights, since efficient levels of investment and
resource utilization can only occur when the owner has the necessary complementary
production inputs. Likewise, the transaction cost justification for secure private property
rights assumes an investment-generating, growth-enhancing reallocation to users with
the skills to use a resource more efficiently. The credit access theory explicitly
recognizes the relationship between property rights, access to capital, and growth, but if
the poor are credit constrained for other reasons, such as ethnic discrimination, then
making property rights more secure will not ―unlock‖ hidden capital.
The enclosure of the commons in 17 th century England reduced overgrazing and
increased agricultural investments on newly enclosed land by improving the property
rights security of the landed elites, but reduced the property rights of small and medium
cottagers who previously had rights to the commons (Yelling 1977). The Black Act of
1723 eroded the customary use rights traditionally enjoyed by laborers and yeomen – in
which the rights to harvest trees and berries, hunt deer, and clear land for agriculture
were shared among many parties – instead crystallizing property rights claims into
clear-cut freehold titles that vested in the landed gentry rights (E.P. Thompson 1975).
Enclosure significantly increased productivity and spurred economic growth, but also
excluded small agriculturalists and pastoralists from formerly common grazing areas,
forcing many to become farm laborers and wage factory workers (Allen 1982).
Brazil is a contemporary example of a dynamic, rapidly growing upper middle income
country—growth rates reached 7.5% in 2010 (CIA World Fact Book)—that currently
presents a high level of property insecurity for marginalized groups but also strong
property rights protections for elites and foreign investors. Since 1985, over 50,000
6indigenous and local residents have been displaced and resettled due to dams
constructed to power Brazil‘s rapidly growing economy, with a majority of resettled
households left worse-off than they had been prior to dam construction (Scudder and
Gay 2005). In 2010 the government approved construction of the world's third largest
hydroelectric power plant on the Xingu River, a large tributary of the Amazon. Projected
to generate 11,000 megawatts, the Belo Monte dam will provide power essential for
Brazil's fast-growing economy, while also displacing approximately 20,000-40,000
indigenous Amazonian Indians.
Yet the property insecurity of less politically or economically powerful marginalized
groups, which may be growth-enhancing in some contexts, can also precipitate armed
conflict and decrease growth indirectly.
A robust body of research has demonstrated that civil war reduces economic growth by
destroying human and physical capital, disrupting economic activity, diverting public
expenditures to unproductive military outlays, and causing capital flight. The five-year
average growth rate is 5% lower, and the thirty-five year average rate is 30% lower, in
countries that experience a civil war than those that do not (Murdoch and Sandler
2004). Collier and Hoeffler (1998) estimate that the annual growth rate during civil war
is reduced by 2.2% on average, while even once a war ends, 17% of GDP continues to
be lost to increased military spending over a ten year period.
The failure of the government to protect the property rights of some citizens, or
participation by the government in selective resource expropriation, can generate
grievances against the government by the group whose land or property is expropriated
(Ballentine and Sherman 2003)—motivating dispossessed groups to take up arms.
Numerous case studies suggest a connection between property insecurity and armed
conflict. Grievances by dispossessed indigenous communities towards the landed elite
and the state have plagued El Salvador, Guatemala, and Bolivia since the colonial era,
and were a primary cause of conflicts from the 1950‘s to the 1980‘s (Gleijeses 1992).
Likewise, the deadly civil wars that engulfed Bougainville and Niger over the past three
7decades, and the low intensity Chiapas conflict throughout the 1990‘s, can be attributed
in part to dispossession of politically powerless property-holders by more well
connected elites.
The link between property insecurity, growth and conflict is apparent in the violent
separatist conflict that engulfed Bougainville, Papua New Guinea (PNG) from 1988-
1997. Traditionally, land in Bougainville was collectively owned through matrilineal clan
lineages, with use rights shared by all members, and ownership inalienable and
nontransferable. Copper was discovered in Bougainville in the mid-1960s, and the PNG
government claimed the minerals—selling the Panguna copper mining concession to
Bougainville Copper Ltd., a subsidiary of Rio Tinto Ltd.. The government forcibly
relocated entire villages, and excluded Bougainville from the revenue-sharing
agreements it negotiated with Rio Tinto. The prioritization of the state‘s and the
corporation‘s property rights at the expense of the Bougainvilleans‘ initially generated
high economic returns: from 1972 to 1989 the Panguna mine contributed 16% of Papua
New Guinea‘s GDP and 44% of its exports. However, in 1988, the convergence of
grievances regarding the effects of mining, the inequitable allocation of revenues, and
long-standing political exclusion provoked a group of marginalized Bougainvilleans to
attack a number of Rio Tinto‘s buildings, destroying the mine‘s power supply. Seeing
the economic lifeline of the country as under an existential threat, and believing a strong
preemptive response would deter further opposition, the PNG government responded
with a military crackdown. The indiscriminate violence polarized the Bougainvillean
population, fueling a widely supported ethno-nationalist rebellion with separatist aims.
The mine was closed in 1989 due to the uprising and the conflict intensified through the
1990s. By 1996 between 15,000 and 20,000 civilians and combatants had been killed
in the conflict, and another 60,000 people displaced. The war also resulted in the
cessation of all economic activity: roughly 10,000 mining jobs and 10,000 more in the
cocoa and copra sectors were lost, and significant mining and transportation
infrastructure destroyed. The economic impact of the mine‘s closure, the direct costs of
the conflict, and the indirect costs of lost growth opportunities incited a severe fiscal
8crisis in PNG by the mid-1990s (Regan 2003). In Bougainville the growth enhancing
prioritization of elites‘ property rights were ultimately undermined by violent conflict.
In net, property insecurity among vulnerable groups allows for growth-enhancing
investment and accumulation, and is compatible with the political accountability of elites
to other elites or the majority, but can also jeopardize growth by enhancing prospects of
conflict. Multiple factors influence when and whether property insecurity for
marginalized groups will generate armed resistance, and when and whether simmering
low intensity conflict rises to the level of civil war. The empirical results here indicate a
strong relationship between the severity of property insecurity and the likelihood of civil
war—suggesting, in short, that the screws on the property rights of marginalized
minorities can be turned only up to a certain point, after which the pressure incites
violence and becomes counterproductive. However, the relationship between property
insecurity and armed resistance indicates a statistical likelihood and is by no means
automatic; there are many cases in which severe property insecurity, such as t hat seen
by the Native Americans during U.S. westward expansion, has been highly growth
enhancing and has not led to civil war. And given that there is no direct relationship
between property insecurity and long-run growth until civil war is taken into account, the
empirical findings suggest that the growth-enhancing and conflict-inciting pathways
cancel each other out, leading to a zero net effect of property insecurity on growth in
aggregate. Although the property insecurity of marginalized groups can impact growth
through the two pathways discussed above, the net effect of property insecurity in any
given case is inevitably context specific and determined by a host of variables.
3 Literature Review
3.1 Property Insecurity and Conflict
In recent years a significant body of work has emerged that utilizes cross-country
quantitative data to examine the factors that drive the onset and incidence of civil wars
(Collier and Hoeffler 1998, 2002, 2004, 2008; Elbadawi and Sambanis, 2002; Fearon
9and Laitin, 2003; Fearon 2005; Humphreys, 2005; Ross 2004; Reynal-Querol 2002,
2005; Miguel, Satyanath, and Sergenti, 2004; Djankov and Reynal-Querol, 2007;
Humphreys 2005).
There is fairly robust evidence that low per capita income and low growth increase the
likelihood of civil war (Collier and Hoeffler 1998, 2002, 2004; Fearon and Laitin 2003;
Miguel, Satyanath, and Sergenti, 2004). The evidence is mixed regarding the role
played by ethnic cleavages. Some studies indicate that high degrees of social
fractionalization make civil war more likely (Reynal-Querol 2002; Montalvo and Reynal-
Querol 2005), but other studies indicate that social fractionalization, which includes both
religious and ethnic cleavages, is statistically uncorrelated with civil war (Fearon and
Laitin 2003). Some research suggests that it is ethnic dominance (where one group
composes between 45% and 90% of the population), not fractionalization per se, which
makes civil war more likely (Collier and Hoeffler 2002, 2004). The scholarship on
natural resources and civil war has divergent findings, but four regularities: (1) oil
dependence appears to be linked to the initiation, but not the duration, of conflict; (2)
―lootable resources‖ such as gemstones, opium, coca, and cannabis do not seem to be
linked to the initiation of conflict, but they do seem to lengthen preexisting wars; (3)
heavy reliance on agricultural commodities seems to be uncorrelated with civil wars;
and (4) the claim that primary commodities broadly – including oil, non-fuel minerals,
and agricultural goods – are associated with the onset of civil war does not appear to be
robust (Ross 2004). Additionally, large population size, mountainous terrain, and a high
proportion of young males between 15 and 29 are associated with a higher likelihood of
civil war (Fearon and Laitin 2003; Collier and Hoeffler 1998, 2002, 2004, 2008).
Examined through the lens of institutions, strongly secure property rights can be viewed
as a proxy for the strength of the state government, because strong states, which are
more capable of providing effective protection against expropriation by private actors,
may also be more capable of detecting dissent and deterring rebellion (Djankov and
Reynal-Querol 2007). Most relevant to the present inquiry, horizontal inequality—which
reflects the difference in income and wealth between ethnic, religious, and cultural
10groups—appears to generate conflict (Stewart 2003), although vertical inequality does
not.
The relative importance of grievances versus greed or feasibility in increasing the
likelihood of civil war and armed conflict remains a robust debate (Collier and Hoeffler
1998, 2002, 2004, 2008; Elbadawi and Sambanis, 2002; Fearon and Laitin, 2003;
Fearon 2005; Humphreys, 2005; Ross 2004; Reynal-Querol 2002, 2005; Miguel,
Satyanath, and Sergenti, 2004; Djankov and Reynal-Querol, 2007). On the one hand a
body of research contends that grievances are ubiquitous, and armed conflict is
constrained only by feasibility (Collier and Hoeffler 1998, 2002, 2004). On the other
hand a diverse body of work identifies economic, political, ethnic, or religious grievances
as the underlying determinants of war and conflict (Elbadawi and Sambanis 2002,
Ballentine and Sherman 2003, Switzer 2001).
Yet the objective indicators that have been used as proxies for feasibility or greed could
actually represent greed, feasibility, or grievances. For example, low levels of per
capita GDP and low or negative growth rates—both which have been used as proxies
for greed and feasibility (Collier and Hoeffler 1998, 2002, 2004)—may make armed
resistance easier by reducing the cost of recruiting rebel soldiers, but economic
deprivation may also be a source of grievances, particularly when individuals perceive
economic woes as partially the fault of the government. Likewise, natural resource
wealth may make civil war more likely by motivating rebel leaders to fight for power in
order to gain control of the resource wealth, eroding state governance capacit y, or
providing a source of rebel group financing (Collier and Hoeffler 1998, 2002, 2004). At
the same time however, extensive natural resource extraction might generate
grievances (Switzer 2001, Klare 2001), even if these grievances cannot be objectively
measured in cross-country comparable data. For example, the extraction process can
pollute the lands of local residents, exacerbate horizontal inequality, increase
perceptions of social exclusion, and require the forced resettlement of local
communities (Extractive Industries Review 2003). This is supported by the Bougainville
and Northern Niger case studies discussed above.
11Research has largely neglected the significant role that property rights insecurity—
generated by displacement from land, forced resettlement, and resettlement by policy—
can play in provoking conflict and civil war. Property rights insecurity is a source of anti-
government grievances, so the property insecurity index developed and applied here
sheds light on the relative importance of greed, feasibility, and different types of
grievances in precipitating armed conflict.
3.2 Property Rights and Economic Development
There is an extraordinarily large and diverse body of research regarding the relationship
between property rights and economic development. Most social scientists—from
classical political economists to contemporary legal scholars and new institutional
economists—argue that secure property rights are a necessary prerequisite for
economic development (Rousseau 1754; Smith 1776; Marx 1867; Hayek 1976;
Williamson 1985; North and Weingast 1989; North 1990; Alston, Libecap and Schnieder
1996; Posner 1998; Acemoglu, Johnson and Robinson 2001; Rodrik, Subramanian, and
Trebbi 2004; Besley and Ghatak 2009).
Over the past fifteen years, cross-country econometric evidence has been used by a
wide range of researchers to support the theoretical claim that ‗good institutions‘,
particularly strong private property rights and protection from expropriation, lead to
economic growth (Knack and Keefer 1995; Acemoglu, Johnson, and Robinson 2001,
2002; Rodrik, Subramanian, and Trebbi, 2004; Kaufmann, Kraay, and Zoido-Lobaton
1999, 2002). Most notable is a World Bank led research initiative, based on six
aggregate governance indices, that has found ‗good governance‘ to have a large and
positive impact on per capita income in the long -term (Kaufmann, Kraay, and Zoido-
Lobaton 1999, 2002). Acemoglu, Johnson and Robinson (2001, 2002) reinvigorated
cross-country regressions on this issue with their use of settler mortality as an
instrumental variable (IV) for institutions, thereby purportedly avoiding the endogeneity
12problem that generally plagues regressions of growth on institutions 1. The Acemoglu,
Johnson and Robinson papers sparked a vast debate. For example, Rodrik,
Subramanian, and Trebbi (2004) regressed growth on three variables – trade
integration, institutions, and geography – again using settler mortality rates as the IV for
institutions, also finding institutions to be the most significant determinant of long-run
growth. Some critics of this line of institutions and development research contend that
geography, not institutions, is the primary long run determinant of economic growth, as
geography impacts development directly by determining disease rates, agricultural
productivity, access to external trade opportunities, and market integration (Sachs and
Mellinger 1999; Diamond 1997).
However, much recent cross-country empirical research regarding property rights and
economic development employs a one-dimensional conception of property rights that
effaces the heterogeneity in property rights enjoyment within countries (Acemoglu and
Johnson 2005; Rodrik, Subramanian and Trebbi 2004; Bockstette, Chanda and
Putterman 2002; Acemoglu, Johnson, Robinson 2001, 2002; Kaufmann, Kraay and
Zoido-Lobaton 1999; Hall and Jones 1999; Clague, Keefer, Knack and Olson 1999;
Knack and Keefer 1995). This one-dimensional conception of property rights ignores
significant variation in the risk of expropriation faced by different ethnic, cultural, and
religious groups in the same country. Before property rights can be strong or weak,
they must be allocated and defined (Kennedy 2009)—and the allocation and
enforcement of resource entitlements through legal institutions reflects the distribution of
political power (Libecap 1989; Ensminger 1992; La Croix and Roumasset 1990; Sened
1997; Alston 1996; Firmin-Sellers 1996; Wyman 2005; Alston, Harris, and Mueller
2009). The cross-national indices of institutional quality widely used in the research
literature—initially designed to assess the property security of foreign investors—fail to
adequately account for the institutional framework encountered by marginalized minority
groups.
1
However, the use of settler mo rtality as an IV has been disputed by research arguing that disease environments
could impact development directly (McArthur and Sachs 2001), and that human capital drives development rather
than institutions (Glaeser, La Porta, Lopez-de-Silanes, and Shleifer 2004).
134 Measuring Security of Property Rights
4.1 Standard Measures of Property Security
Over the past three decades a virtual cottage industry in governance indicators has
emerged, including a ‗Risk of Expropriation‘ index from the International Country Risk
Guide (ICRG) and a ‗Property Security‘ index from the Heritage Foundation.
The ICRG, a component of Political Risk Services (PRS), was first created in 1980 by
the editors of a weekly newsletter on international finance and economics called
International Reports. The purpose of the ICRG was to ―meet the needs of clients for
an in-depth and exhaustively researched analysis of the potential risks to international
business operations‖ (Political Risk Services, n.d.). According to PRS, the primary
users and consumers of the ICRG ratings data are institutional investors, banks,
multinational corporations, importers, exporters, and foreign exchange traders (Political
Risk Services, n.d.). Given that the intended customers of the ICRG are capital
investors and multinational corporations, the information on expropriation risk is meant
to reflect the risk posed to the enterprises of the large and often multinational
businesses that are purchasing the ICRG data, not the property rights of marginalized
ethno-cultural minority groups, who are clearly not purchasing the ICRG data.
The Heritage Foundation scores ―the degree to which a country‘s laws protect private
property rights and the degree to which its government enforces those laws‖ (Heritage
Foundation 2009). The Heritage Foundation‘s property rights indicator is expansive,
addressing the likelihood that private property will be expropriated, the independence of
the judiciary, the existence of corruption within the judiciary, and the ability of individuals
and businesses to enforce contracts (Heritage Foundation 2009). The index is a
subjective score, based on information gleaned from the Economist Intelligence Unit,
Country Commerce; U.S. Department of Commerce, Country Commercial Guide; U.S.
Department of State, Country Reports on Human Rights Practices; and the U.S.
Department of State, Investment Climate Statements. Once again, all these sources
except for the U.S. State Department Reports have as their primary audience large
14commercial investors interested in assessing the investment risks posed to their
business ventures.
The World Bank‘s widely used Worldwide Governance Indicators [WGI], initially
developed by Kaufmann, Kraay, and Zoido-Lobaton (1999), incorporate the Heritage
Foundation‘s property security measure as well as the property rights measure from
ICRG. It would be difficult to overstate the reach and influence of the WGI as a
research tool in cross-country analysis. The most recent Governance Matters
publication (Kaufmann, Kraay, and Mastruzzi 2009) ranks as one of the top 50
downloads on SSRN; and according to a search of the World Bank‘s Governance
Matters website and SSRN, the Worldwide Governance Indicators have been used in
over a hundred and fifty research papers as aggregate measures of governance and
institutional quality.
The property rights index from Political Risk Service‘s ICRG has also been widely used
on its own in the cross-country research literature as a proxy for ―institutional quality‖
broadly, and for the security of property rights more specifically. For example, in their
well-known article examining the relationship between institutions and long-run growth,
Knack and Keefer (1995) relied on a re-scaled version of the ICRG index score to
measure ―institutional quality‖. The frequently cited work of Acemoglu, Johnson and
Robinson, in which settler mortality is used as an instrumental variable for institutions,
also relies upon the ICRG risk of expropriation index as a proxy for institutional quality
(2001, 2002). The ICRG index is also pervasive in the cross-country research on the
relationship between natural resource abundance, institutions, growth, and conflict
(Boschini, Pettersson, and Roine 2007; Djankov and Reynal-Querol 2007; Mehlum,
Moene, Torvik 2006).
4.2 A New Index of Property Insecurity
The Property Insecurity (PI) Index is a composite measure of the property insecurity
experienced by minority groups in a country. The index is based on scores in three
15dimensions: dispossession from land, forced internal resettlement, and internal
resettlement by policy. Data is drawn from the Minorities at Risk (MAR) database,
which assesses the political and economic exclusion of ethno -cultural minorities2 in
every country with a population of at least 500,000. Experts assign a numerical score
indicating the severity of exclusion to each group along an array of political, economic,
social, and cultural dimensions. Like the ICRG and Heritage Foundation indices, the
Property Insecurity (PI) Index measures the de facto, rather than de jure, protection
from expropriation experienced by ethno-cultural minority groups. The PI index detects
state failure to protect the property rights of minority groups from incursions by other
(possibly more powerful and influential) private actors, as well as direct state acts of
expropriation. In contrast to other frequently used measures of property rights security,
the PI index directly measures the security of property rights for marginalized groups.
There are three versions of the Property Insecurity Index. The first, Property Insecurity
(Weighted), is a sum of group property insecurities weighted by the group‘s proportion
of the population. The second, Property Insecurity (Max), reflects the property
insecurity of the worst-off group in a country. The third, Property Insecurity (Mean)
reflects the average property insecurity score of minority groups within a country.
Property Insecurity (Weighted) = Σ(GPROg)Pg (1)
Property Insecurity (Max) = Pworst (2)
Property Insecurity (mean) = Average(Pg) (3)
Where GPROg is the group‘s proportion of the country‘s total population and Pg =
(DMEVICTg + DMRESETg + DMRES g)/3 = Property Insecurity for Group g.
2
The Minorit ies at Risk (MAR) Project “monitors and analyzes the status and conflicts of politically -active
communal groups”. A “minority at risk” refers to “an ethnopolitical group (non -state communal group) that:
collectively suffers, or benefits fro m, systematic discriminatory treat ment vis -à-vis other groups in a society; and/or
collectively mobilizes in defense or promotion of its self-defined interests.” The follo wing four dichotomous
variables identify the factors present in the group which make it a minority at risk: (1) the group is subject to
discrimination at present; (2) the group is disadvantaged due to past discrimination; (3) the group is an advantaged
minority; and (4) the group supports political organizations advocating greater group rights. Groups are included in
the MAR database if the country in wh ich they reside had a population greater than 500,000 and the group itself had
a population larger than 100,000 or 1 percent of the country populat ion.
16If the commonly used ICRG or Heritage Foundation indices are in fact accurately
measuring property rights as experienced broadly by a country‘s population, we should
expect to see an inverse correlation between Risk of Expropriation and Property
Insecurity, since countries with the highest score on the Risk of Expropriation index
(indicating little to no risk of expropriation) should receive the lowest score on the
Property Insecurity index (indicating that ethno -cultural minority groups face little to no
risk of dispossession or resettlement).
Yet there is actually no relationship between Property Insecurity and the ICRG or
Heritage Foundation measures of property rights security. Tables showing the lack of
any significant correlations can be found in Appendix 1 and 2. The data availability for
the Heritage Foundation and the ICRG measure differ, so Table 1 takes the years
available for the ICRG Index as the baseline dataset, while Table 2 takes the years
available for the Heritage Foundation Index as the baseline dataset. Countries that
score well in terms of a low risk of expropriation faced by elites and foreign investors
often contain minority groups who suffer from significant levels of land dispossession
and forced resettlement.
Since widely used property rights indicators are not detecting the property security
experienced by members of marginalized ethno -cultural minority groups, then the
results of studies that rely on these indicators cannot support claims that broad and
uniform protection from expropriation matters for long run economic development or risk
of armed conflict. In fact, utilizing this new set of indicators of Property Insecurity, the
empirical findings discussed below demonstrate that property insecurity of ethno-
cultural minorities does not reduce long-run growth; that the severity of property
insecurity for the worst-off group in a country is strongly related to the onset of armed
conflict; and, controlling for civil war, property insecurity for ethno-cultural minorities is
actually associated with higher growth rates.
5 Empirical Results: Growth, Conflict, and Property Insecurity
175.1 Long-Run Growth: Data, Econometric Model, Results and Analysis
If the property rights insecurity of ethno-cultural minorities is irrelevant for long-run
growth, this undermines the theory that broad security of property rights for everyone is
an important factor in economic development. Restated as a testable empirical
question: if the security of property rights as measured by the ICRG index, but not as
measured by the Property Insecurity index, is related to long-run growth, this validates
the hypothesis that the political and economic implications of secure property rights
depends on whose property rights are secure.
The base sample used by Acemoglu, Johnson, and Robinson (2001) in their well-known
paper arguing that institutional quality is a fundamental cause of economic development
includes 64 ex-colonies for which data is available on settler mortality, expropriation
risk, and per capita GDP. This same base sample is used here to examine the effect of
Property Insecurity on economic development, in order to test whether the security of
property rights for disadvantaged ethno-cultural groups matters for long run growth.
I begin with the ordinary least-squares (OLS) regressions of log per capita income on
the different measures of property security and insecurity. These results are reported in
Table 3 in the appendix. The linear regressions are for the equation:
log yi = α + βPi + µXi + є (4)
where yi is per capita income in country i, Pi is the property security measure, X i is a
vector of covariates, and єi is the random error term. The coefficient of interest is β,
which measures the effect of property security on per capita income. An alternative
specification, where the outcome of interest is the composite Human Development
Index, from the UNDP Human Development Reports Office, is also tested. The Human
Development Index is an average of life expectancy, literacy rates plus gross school
enrollment, and log per capita income. The cross-country regression results show no
relationship between the property insecurity of ethno-cultural minority groups and level
18of economic development, as measured by either GDP per capita or the Human
Development Index (HDI). Countries where significant segments of the population
suffer from property insecurity – mild or severe – often have relatively high levels of per
capita income and HDI achievement, reflecting steady economic growth rates since
1500.
19The 2001 AJR paper is well-known not for its finding of a simple correlation between
expropriation risk and per capita income, as such a correlation can be explained by
many factors, including reverse causality – in which economic development led to better
property rights institutions – and omitted variables such as agricultural productivity and
extent of integration into the global economy – which could generate both stronger
property protections for foreign investors and higher levels of per capita income. The
AJR paper sparked significant interest because it used settler mortality as an
instrumental variable (IV) to predict institutional quality today, in order to avoid
endogeneity problems. 3
This IV strategy was based on the argument that settler mortality during the colonial era
does not directly affect income per capita today, but it does impact institutional quality.
According to Engerman and Sokoloff (2005), ―colonies that began with extreme
inequality and population heterogeneity came to exhibit persistence over time in
evolving institutions that restricted access to economic opportunities.‖ They trace the
emergence of ―poor‖ institutions to factor endowments that favored production of
lucrative crops, such as sugar cane, using slave labor (in the Caribbean and Brazil), or
to the persistence of large populations of natives and sparse numbers of settlers.
These characteristics led to greater levels of inequality, which resulted in political
institutions that were less democratic, which then engendered property rights which
favored elites, as indicated by a high risk of expropriation. Arguing that settler mortality
determined European settlement patterns, and that countries with higher mortality would
have fewer settlers and therefore higher degrees of inequality and ultimately ―weaker‖
institutions, including less secure property rights for the majority of the population,
Acemoglu, Johnson and Robinson (2001) show a strong and significant relationship
between settler mortality and the ICRG Risk of Expropriation indicator. This can be
explained, AJR contend, by the fact that low settler mortality and sparse pre-colonial
3
For crit iques of this IV strategy, see Albouy (2004), disputing the validity of the settler mortality data; McArthur
and Sachs (2001), arguing that settler mortality fails to meet the exclusion restriction because disease environment
impacts development directly; and Glaeser, La Porta, Lopez-de-Silanes, and Shleifer (2004), contending that
education and culture drives development rather than institutions, and the density of European settlement is
correlated with these factors.
20populations encouraged settlers to replicate European institutions with strong private
property rights and checks against government power, while colonial disease
environments and factor endowments that favored the establishment of extraction
industries – which relied on concentrated capital and the extensive employment of low-
skilled workers, rather than broadly egalitarian land distribution and small scale self-
employment – generated less accountable political institutions and limited property
rights (Acemoglu, Johnson, and Robinson 2001, 2002; Engerman and Sokolof 2005).
According to the theory, these poor institutions and insecure property rights have, in
turn, impeded economic development.
The two-staged least squares estimates used by AJR (2001) treat property rights
security, Pi , as endogenous, and are model as:
1st Stage: Pi = α + βlogMi + µXi + єi (5)
nd
2 Stage: log yi = α + βPi + µXi + єi (6)
Where M is the settler mortality rate and X i is a vector of covariates.
The theoretical relationship underlying this IV strategy suggests that settler mortality
rates should also predict Property Insecurity of ethno-cultural minorities, because the
reason settler mortality rates are thought to effect institutions is through the
establishment of extraction economies, where high settler mortality led to extensive
extraction economies, which in turn produced property rights institutions that favor
elites, while low settler mortality led to broadly egalitarian property rights. If Property
Insecurity and the ICRG Property Security measure were two sides of the same coin
(i.e., inverses of each other), which would be the case if the two indices accurately
captured the level of property rights security experienced by a country‘s population as a
whole, then high settler mortality rates should predict low levels of property insecurity
and low settler mortality rates should predict high levels of property insecurity.
21I estimate the first-stage of the IV relationship used by AJR (2001) for our alternative
Property Insecurity measures, based on AJR‘s original settler mortality data. Results
are shown in Table 4. In almost all specifications the first-stage relationship between
settler mortality and property rights disappears when we substitute in any of our
measures of Property Insecurity.
OLS results demonstrate that Property Insecurity is not related to long-term economic
growth, while the first-stage results of the potential-but-discarded instrumental variable
(IV) specification show no relationship between settler mortality and any of the Property
Insecurity measures. Both these results suggest that economic growth can occur when
the property rights of a broad cross-section of elites and investors are secure but
vulnerable minorities face high a risk of expropriation, possibly because resources are
being reallocated into the hands of investors with access to capital.
If one pathway through which secure private property rights leads to economic growth is
by increasing government accountability – as the ―macro‖ theories regarding liberty,
secure property rights, democracy, and public goods p rovision suggest – then our
results also indicate that a more nuanced understanding of the role played by private
property rights in constraining the power of elites is required. The ICRG index
measures the security of property of elites and large investors, while the Property
Insecurity Index is sensitive to the risk of expropriation faced by less powerful ethno-
cultural minorities. One might therefore infer that Property Insecurity would be a more
appropriate proxy for constraints on elites than the ICRG measure. However, given the
absence of a relationship between Property Insecurity and economic growth, there is no
indication that Property Insecurity for ethno -cultural minorities is related to more
accountable governance. This suggests instead that it is property security for elites, not
for everyone, that matters for constraining the power of elites.
Elites are not a single monolithic group. Different groups of elites have different
interests, and compete amongst themselves for power (Dezalay and Garth 2002). A
quintessential example of elites with divergent interests was the battle between
22Northern manufacturing industrialists and Southern landowning agriculturalists over
tariff and labor policies, which helped precipitate the U.S. Civil War. Security of property
rights for elites can therefore increase accountability of the governing elites towards
other elites with divergent interests (Buchanan and Tullock 1962). Security of property
for marginalized minorities may not be required for government accountability. Once
again, security of property rights for whom matters.
5.2 Conflict: Data, Econometric Model, Results and Analysis
When we turn to armed conflict, we see that the Property Insecurity index that is most
sensitive to severe property insecurity of ethno-cultural minority groups – Property
Insecurity (Max) – is strongly correlated with the likelihood of civil war onset. A country
receives a high Property Insecurity (Max) score when any minority group, regardless of
size, experiences severe levels of displacement, resettlement, or forced resettlement.
Although recent studies have emphasized the role played by economic, ethnic, and
geographic factors in influencing the likelihood of civil war, the results here suggest that
the displacement and resettlement of minority groups—an objective measure of anti-
government grievances—is an important cause of civil war onset. Controlling for
income, growth rates, natural resource dependence, social fractionalization, and ethnic
dominance, the results here reveal that countries in which minority groups have suffered
severe levels of property insecurity are significantly more likely to experience civil wars.
The baseline dataset is drawn from Collier and Hoeffler (2004), which creates country
periods based on five-year increments. There are 733 possible units of observation,
beginning 1980-1984 and ending 1995-1999. Due to missing data, the estimation
sample varies depending on the variables included in the model. To test robustness I
also included the same left and right-hand side variables in a specification with one-year
country periods, using interpolated values to mitigate the proble ms introduced by
listwise deletion. 4 I deal with the potential of reverse causality by measuring the
4
The key reasons for listwise deletion are (a) missing data on Property Insecurity, particularly the variant that
requires information on each minority group’s proportion of the population; (b) a civil war was already ongoing
when the period began, so the war onset variable is coded as missing; and (c) missing data on income, growth, and
23property insecurity of minority groups at the start of the five year period, rather than
using the period average. The dependent variable is a dummy variable indicating
whether a war started during the time period observed. This is based on the Correlates
of War (COW) dataset. According to the COW definition, a war exists when (a) there is
organized military action that results in at least 1,000 battle deaths in a given year; (b) at
least five percent of the deaths were inflicted by the weaker party (to distinguish wars
from genocides); and (c) the national government at the time was involved. Countries in
which a war was already ongoing at the start of the period – so neither ‗war onset‘ nor
‗at peace‘ apply – are coded as missing.
The outcome variable – civil war onset – is dichotomous, so a logit specification is used.
The probability of civil war onset in country i at time t is related to our independent
variables by a maximum log likelihood function, where P it is a country‘s Property
Insecurity score at the start of the period, X it is a vector of controls, and conflict is a
dummy variable with a value of 1 if a civil war began in a country during the time period.
prob(conflict it = 1) = π it = 1/(1 + e−zi) (7)
zit = α + β1Pit + β2Xit (8)
πi = 1/(1 + e−(α + β1 Pit + β2x it)) (9)
Controls are the main factors that have been shown in other studies to be associated
with the onset of civil war: logged per capita income, growth, natural resource
abundance, time passed since previous war, and population size. As growth is likely
endogenous to conflict (Miguel, Satyanath and Sergenti 2004) the growth measure is
also time-lagged to reflect growth in the previous five-year period. Natural resource
abundance is measured in a few different ways. Following Collier and Hoeffler (2002,
2004, 2008) and Sachs (1995), a measure for the proportion of primary commodities
exports in GDP (SXP) and the square of this term (SXP 2) is used. The square is
included because there is some evidence that the likelihood of civil war onset increases
resource exports. See Fearon (2005) for a more detailed discussion of the potential problems and biases introduced
in the study of civil war onset by listwise deletion.
24until an extreme level of dependence on resource extraction is reached, at which point
the probability of war begins to decrease (Collier and Hoeffler 2004, 2008). Fuel
exports as a proportion of total exports and fuel exports as proportion of GDP is also
measured in order to more narrowly identify the effect of point source natural resources,
as primary commodity exports is a very broad measure of extractive industry
dependence. However, all these measures of natural resource abundance with GDP in
the denominator include information regarding the size and structure of the economy
(Ross 2008) 5 so interpretation of the natural resource coefficients should be treated
cautiously.
Because the existence of Property Insecurity for ethno -political minorities may be
related to the number of minority groups within a country, social fractionalization is
controlled for to avoid omitted variable bias and to ensure that the index of Property
Insecurity is not simply proxying for ethnic or religious diversity. The statistical impact of
ethnic and religious cleavages on the risk of conflict has been controversial in the
literature (Collier and Hoeffler 1998, 2004, 2008; Fearon and Laitin, 2003; Reynal-
Querol, 2002; Montalvo and Reynal-Querol 2005). The fractionalization index used
here is multiplicative, so religious and ethnic cleavages are both included as
independent lines of social fracture (Source: Collier and Hoeffler 2004). Likewise,
Property Insecurity might be correlated with ethnic dominance, and tensions driven by
ethnic dominance may be driving conflicts, making the association between Property
Insecurity and conflict spurious. To avoid omitted variable bias here, a dummy variable
for whether the majority ethnic group composes between 45% and 90% of the
population is included as a control (Source: Collier and Hoeffler 2004).
Findings, shown in Table 5 in the Appendix, reveal that Property Insecurity (Max) is
significantly and positively related to civil war onset. These results are robust, and hold
across models, regardless of any other variables included. In the core model, which
5
For example, Angola and Norway have virtually identical levels of oil production per capita, but Angola’s ratio of
oil p roduction over gdp and over exports is many times larger, reflecting the drastically s maller size of Angola’s
economy and domestic oil consumption. Therefore my preferred measure of natural resources is oil and gas
production per capita.
25uses five year country periods and interpolated values for the Property Insecurity scores
at the beginning of each period, the marginal effect of logged Property Insecurity (Max)
on the onset of civil war is .0487 at the means for all variables, corresponding to a 4.8%
increase in the likelihood of civil war. Because the Property Insecurity indicator is
logged, a more revealing indicator of the relationship between Property Insecurity and
civil war onset is the average partial effect of (logged) Property Insecurity on civil war
onset, obtained by averaging all individual partial effects across the sample. The
average partial effect of Property Insecurity (Max) on the probability of civil war is .107,
indicating that a one unit change in the log of the Property Insecurity (Max) indicator
score increases the likelihood of civil war by 10.7%.
These results are significant at the 1% level i n two specifications and the 5% level in
three specifications. Interestingly, neither social fractionalization nor ethnic dominance
are remotely significant in our model. Only the impacts of per capita income and
months prior peace are consistently substantial and significant in the 5 year framework,
while the effect of growth is consistently significant in the 1 year framework for
specifications including Property Insecurity but not those including Risk of Expropriation.
Results were robust to including various different measures of natural resource
abundance.
26Risk of Expropriation, as measured by the ICRG indicator, is insignificant in all
specifications. This result provides evidence against the hypothesis that is it simply the
―quality‖ of state institutions that determines the likelihood of conflict. Clearly, whose
property rights are secure and insecure matters. These findings contrast with those of
Djankov and Reynal-Querol (2007), who found a correlation between Risk of
Expropriation and civil war. However, their dependent variable was whether a country
had experienced a civil war between 1960 and 2005, while their measure of
expropriation risk was the average ICRG score from 1985-1995, raising an obvious
reverse causality problem. 6 Interestingly, including Risk of Expropriation on the right-
hand side caused significance to disappear on most other variables in both 1 and 5 year
frameworks, including growth and per capita income, indicating colinearity.
The Property Insecurity indicator distinguishes between institutional failures writ large,
perhaps better measured by the ICRG index, and government failures that
disproportionately impact specific minority groups. A poor score ICRG index does not
increase the likelihood of civil war onset once other variables are included as controls,
6
They attempted to address this by instrumenting for Risk o f Exp ropriat ion using the AJR strategy discussed
previously, but this strategy violates the exclusion restriction because settler mortality may affect long-run growth
according to AJR’s analysis, and both growth and per capita income d irect ly impacts the likelihood of conflict.
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