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.” Our model organizes these competing claims and highlights tradeoffs due to differences in legibility versus the ability to displace land holders under both systems. We study a natural experiment in Liberia where law codifies parallel private and customary property rights systems. We exploit this institutional boundary and difference-in-differences methods to isolate differential changes in external investment under private and customary property rights systems following the Global Food Crisis of 2007–8. We find a larger increase in land clearing where private property rights prevailed related to larger and more active agribusiness concessions. Qualitative study of a palm oil concession reveals the challenges that external investors face navigating customary systems.

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