NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Property Rights and Finance

Simon Johnson, John McMillan, Christopher Woodruff

NBER Working Paper No. 8852
Issued in March 2002
NBER Program(s):   CF

Which is the tighter constraint on private sector investment: weak property rights or limited access to external finance? From a survey of new firms in post-communist countries, we find that weak property rights discourage firms from reinvesting their profits, even when bank loans are available. Where property rights are relatively strong, firms reinvest their profits; where they are relatively weak, entrepreneurs do not want to invest from retained earnings.

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Published: Johnson, Simon, John McMillan and Christoher Woodruff. "Property Rights And Finance," American Economic Review, 2002, v92(5,Dec), 1335-1356.

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