Abstract
Recent years have seen an increasing number of empirical papers using subjective indicators in cross-country quantitative analyses of growth. We evaluate potential observer biases in the three most commonly employed subjective measures of property rights – taken from the Heritage Foundation, Fraser Institute, and World Economic Forum. Drawing on cross-national data for 156 countries during the years 2000 – 2010, we use Granger causality tests to assess whether exposure to recent information on economic performance introduces bias to coding of property rights scores. Further, we evaluate whether the Great Recession led observers to change property rights scores in advanced nations. We find consistent evidence that observers who provide subjective coding of property rights scores rated nations more positively when their economic performance was positive, and more negatively during the recent global financial crisis. Taken together, our findings suggest that coding of commonly employed property rights measures are subject to substantial observer bias.
Notes
1. Chang (Citation2011) argues that both very high and low levels of property rights protection could lead to an inefficient use of resources in a variety of domains: for example, patent protections increase the cost of inputs to drug development, pricing researchers out of the market; absentee landlords can evict productive squatters, reducing output and increasing poverty.
2. Taken from the Heritage Foundation’s website (http://www.heritage.org/about).
3. We do not include the risk of expropriation indicator from the PRS Group’s International Country Risk Guide IRIS-3 Dataset frequently used in earlier studies because it has since become outdated – observations do not extend beyond 1997 and the dataset has not been updated in over a decade.
4. While econometric studies uniformly show a positive relationship, several case studies cast doubts on the certainty of the relationship (see Benjaminsen et al. Citation2008; Gilbert Citation2002; Hunt Citation2004; Manji Citation2006; Neuwirth Citation2006).
5. A notable exception is a study by Bose, Murshid, and Wurm (Citation2012), who find a nonlinear relationship between property rights and growth. They conclude that stronger enforcement of property rights raises growth up to a point before growth begins to decline.
6. The list of countries used is United Nations’ ‘Western European and Others’ group. It includes the following countries: Andorra, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Israel, Italy, Liechtenstein, Luxembourg, Malta, Monaco, Netherlands, New Zealand, Norway, Portugal, San Marino, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States.