Property in Economic Development

Readers Question: Please explain the role that property plays in a country’s economic development.

Property rights are important for giving firms the incentive and confidence to invest. Firms need a profit incentive to invest in buying capital and investing in equipment. Without the guarantee of private property their profit is a risk. This is important for foreign multinationals considering whether to invest in a developing country. For example, they may fear investing in oil production, if there is a chance that the oil industry could be nationalised and therefore they would lose out.

Property might also be important for dealing with market failure such as tragedy of the commons.

For example, if there is no ownership of limited water supplies, it may lead to over supply or over fishing which harm the long term economic welfare of the economy.

It is also worth bearing in mind Property can create problems in an economy. If

• Property is inequitably distributed. e.g. many rural farmers have no access to land so they can’t grow their own crops.
• Monopoly exploitation of firms / people with property rights.
• Tragedy of the anti commons. E.g. people with patents preventing the use of their inventions.