Property Rights, Investment, and Land Grabs: An Institutional Natural Experiment in Liberia

Abstract

We address a debate in the development literature over the effects of private versus customary property rights on investment. This debate has been reinvigorated by a dramatic increase in the demand for land in developing countries: despite political economists’ claims that investors favor private property rights, observers argue that customary systems have enabled large-scale ``land grabs.” We develop a model of investment under different property rights systems and then use use a natural experiment in Liberia — a major target of new investment — to evaluate the effects of these regimes on investment. Laws dating back to the 19th Century established two parallel property rights systems. We exploit this institutional discontinuity and difference-in-difference methods to compare changes in investment in private and customary property rights systems in the aftermath of the Global Food Crisis of 2007-8. We find that investment increased more rapidly where private property rights prevailed; moreover, this divergence is partially caused by larger and more active agribusiness concessions. A case study of a major palm oil concession supports and adds detail to our quantitative findings.

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