DP2300 Inequality, Property Rights Protection, and Economic Growth in Transition Economies: Theory and Russian Evidence

Author(s): Konstantin Sonin

Publication Date: November 1999

Keyword(s): Economic Growth , Political Economy , Property Rights , Transition Economics

JEL(s): D72 , H40 , O40

Programme Areas: Transition Economics

Link to this Page: www.cepr.org/pubs/dps/DP2300.asp

For economies in transition, the issues of property rights protection provided by the state and implications for economic performance are very important. The paper develops an endogenous growth theory model with incomplete capital markets and the level of public protection of property rights determined by voting (possibly different from the majority voting) and verifies the implications using cross-section data on Russian regions. During transition (since 1992), Russian regions demonstrated enormous differences in growth rates. It is found that these differences may be explained by initial conditions and effectiveness of institutions. Also, positive impact of inequality on the level of public protection of property rights is found and a theoretical explanation for this phenomenon in the framework of the model is provided.