Legibility and External Investment: An Institutional Natural Experiment in Liberia

Abstract

We address a debate over the effects of private versus customary property rights on external investment. Despite political economists’ claims that external investors favor private property rights, other experts argue that customary systems enable large-scale ``land grabs.’’ We organize these competing claims, highlighting tradeoffs due to differences in legibility versus the ability to displace existing land holders under both systems. We study a natural experiment in Liberia where law codifies parallel private and customary property rights systems. We use this institutional boundary and difference-in-differences methods to isolate differential changes in external investment under the different property rights systems following the Global Food Crisis of 2007–8. We find a larger increase in land clearing where private property rights prevailed, with such clearing related to more concession activity. Qualitative study of a palm oil concession reveals challenges external investors confront when navigating customary systems.