Academic journal article The American Journal of Economics and Sociology

Propertyless in Peru, Even with a Government Land Title

Academic journal article The American Journal of Economics and Sociology

Propertyless in Peru, Even with a Government Land Title

Article excerpt

I

Introduction

"[I] trust in the [community] president, but [I] don't trust in the government."

--Personal Interview

RECENT LITERATURE ILLUSTRATES THE STRONG, positive, and robust connection between secure property rights and economic development (Scully 1988; Boettke 1994; Besley 1995; Knack and Keefer 1995; Leblang 1996; Hall and Jones 1999; de Soto 2000; Acemoglu, Johnson, and Robinson 2001, 2002; Landau 2003; Acemoglu and Johnson 2005; Kerekes and Williamson 2008). Table 1 shows this relationship between the security of property and the level of a country's income. The difference between the top 25 percent and the bottom 25 percent based on the property rights index is remarkable, a difference of over $28,000 per capita. This basic table suggests that the security of property translates into real economic effects. (1)

Although there is relative consensus on the importance of property rights for economic growth and development, the question remains as to how to achieve secure property rights institutions. Economists understand that property rights are important for economic growth, but a large portion of the developing world fails to establish and maintain well-defined and secure property rights. This is partly due to a lack of understanding of how to achieve secure property rights institutions.

One method of achieving secure property rights is through government land titling, as advocated by Peruvian economist Hernando de Soto (2000). He emphasizes the importance of a written, formal, legal property rights system and the need to incorporate the informal, or extralegal, sector within the established legal sector. He argues that to best facilitate economic growth, an integrated system of standard legal titles is necessary. In short, de Soto believes that government codification of unarticulated, informal property rights is needed in order to realize the positive benefits associated with secure and well-defined property rights that promote economic development. Property titling is increasingly considered one of the most effective forms of government intervention (Binswanger, Deininger, and Feder 1995; Baharoglu 2002).

Specifically, de Soto (as well as other scholars) argues that a formal land titling system can generate the positive outcomes associated with secure property rights as formally outlined in Besley (1995). One mechanism, or channel, emphasized through which land titles provide the groundwork for property rights institutions is through the ability of owners to utilize their titled property as collateral to secure financing for investments. In addition, in order for a land titling program to achieve these positive effects, the complementary enforcement mechanism must exist to secure the rights; therefore, a legal government land title should be enforceable through public institutions, such as a court system. We view this argument as providing a specific hypothesis to examine the ability of land titling to achieve secure property rights. If secure property is achieved via land titling programs, then land titling should provide access to credit markets not previously attainable and access to enforcement of these rights as defined by the land titles.

Building from these theoretical predictions, we examine the ability and process of government land titling to achieve well-defined and secure property rights institutions. We specifically focus on the capacity for titles to provide access to credit to finance investments, and the public, as well as private, enforcement mechanisms that exist to define, establish, and enforce property rights. We recognize that land titles may influence other aspects important for development; however, we focus on the aforementioned channel and test this theoretical prediction as it is most emphasized in the literature. In order to undertake this investigation, we focus on Peru as a case study and utilize original survey data collected from fieldwork. …

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