International
Property Rights Index
2017

II. IPRI Structure

  1. Property Rights: The Essence of Liberty

  2. IPRI Structure

  3. Methodology

  4. IPRI 2017 Country Results

  5. IPRI-Population

  6. IPRI and Gender

  7. IPRI and Development

  8. IPRI Cluster Analysis

  9. Final Remarks

  10. References

  11. Appendix

 

II. IPRI Structure

Since 2007, Property Rights Alliance (PRA) - dedicated to the protection of property rights all around the world - instituted the Hernando de Soto fellowship to produce a yearly edition of the International Property Rights Index, IPRI.

The IPRI was developed to serve as a barometer for the status of property rights across the world. A vast review of the literature on property rights was done in order to conceptualize and operationalize a comprehensive characterization of property rights. Following convention set in place by previously compiled indexes, several experts and practitioners in the field of property rights were consulted to finalize the set of core categories (here-after referred to as “components” or ‘sub-indexes’) and the items that create the components.

The following are the three core components of the IPRI:

  1. Legal and Political Environment, LP

  2. Physical Property Rights, PPR

  3. Intellectual Property Rights, IPR

FIGURE 1. IPRI Structure

 

The Legal and Political Environment (LP) component provides an insight into the strength of governance institutions of a country, the respect for the ‘rules of the game’ among citizens; consequently, the measures used for the LP are broad in scope. This component has a significant impact in the development and protection of physical and intellectual property rights.

The other two components of the index - Physical and Intellectual Property Rights (PPR and IPR) - reflect two forms of property rights, both of which are crucial to the economic development of a country. The items included in these two categories account for both de jure rights and de facto outcomes for the countries considered.

The IPRI is comprised of 10 items in total, each gathered under one of the three components: LP, PPR, or IPR. While there are numerous items related to property rights, the final IPRI is specific to the core factors that are directly related to the strength and protection of physical and intellectual property rights, and the political institutions responsible for their protection. Furthermore, items for which data was available more regularly and in a greater number of countries were given preference. This was done to ensure that scores were comparable across countries and years.

The IPRI-2017, the eleventh edition, keeps the previous years’ methodology to allow for a full comparison of its results with previous editions.

II.1 LEGAL AND POLITICAL ENVIRONMENT

The Legal and Political Environment component grasps the ability of a nation to enforce a de jure system of property rights and for that four items or indicators are considered: the independence of its judicial system, the strength of the rule of law, control of corruption, and the stability of its political system.

JUDICIAL INDEPENDENCE

This item examines the judiciary’s freedom from influence by political, individual or business groups. The independence of the judiciary is a central underpinning for the sound protection and sovereign support of the court system with respect to private property.

For this item, the chosen data source was the Global Competitiveness Index from the World Economic Forum’s 2016-2017 . The original data scale is [1 - 7], where 7 is the best score. The full question and associated answers of the Executive Opinion Survey for this indicator was:

In your country, how independent is the judicial system from influences of the government, individuals, or companies? [1= not independent at all; 7 = entirely independent] 

RULE OF LAW

This item measures the extent to which agents have confidence in and abide by the rules of society. In particular, it measures the quality of contract enforcement, property rights, police, and courts, as well as the likelihood of crime and violence.

The item combines several indicators that include: fairness, honesty, enforcement, speed, affordability of the court system, protection of private property rights, and judicial and executive accountability. This item complements the Judicial Independence variable.

For this indicator, the chosen data source was the World Bank Worldwide Governance Indicators, 2015. The original data scale is [-2.5 to 2.5], where 2.5 was the best score.

POLITICAL STABILITY

The degree of political stability influences incentives to obtain or to extend ownership and/or management of property. The higher the likelihood of government instability, the less likely people will be to obtain property and to develop trust in the validity of the rights attached.

For this item, the chosen data source was the World Bank Worldwide Governance Indicators, 2015. The original data scale is [-2.5 to 2.5], where 2.5 was the best score.

NOTE: A special warning must be made regarding the Political Stability indicator, since this year it presents a value outside its normal range for a country (Yemen -2.63). This country value was considered as an extreme of the range scale (minimum value) for the rescaling process.

CONTROL OF CORRUPTION

This item combines several indicators that measure the extent to which public power is exercised for private gain. This includes petty and grand forms of corruption, as well as the ‘capture’ of the state by elites and private interests. As with the other items in the LP component, corruption influences people’s confidence in the existence of sound implementation and enforcement of property rights. Corruption reflects the degree of informality in the economy, which is a distracting factor to the expansion of respect for legal private property.

The research by Dong and Torgler (2011) supports these ideas. They provide theoretical and empirical evidence of 108 countries from 1995-2006, showing that the effects of democratization on control of corruption depend on the protection of property rights and income equality, creating in this way a virtuous circle.

The data source chosen for this item was the World Bank Worldwide Governance Indicators, 2015. The original data scale is [-2.5 to 2.5], where 2.5 was the best score.

II.2. PHYSICAL PROPERTY RIGHTS (PPR)

A strong property rights regime must earn the confidence of people in its effectiveness to protect private property rights. It also provides for unified transactions related to the registry of property and it allows access to the required credit to convert property into capital. For these reasons, the following items are used to measure private property rights protection (PPR).

PROTECTION OF PHYSICAL PROPERTY RIGHTS

The Protection of Physical Property Rights relates directly to the strength of a country’s property rights system based on the expert’s views of the quality of the judicial protection of private property, including financial assets. Additionally, it encompasses the expert’s opinion on the clarity of the legal definition of property rights.

The data source to measure this item was the World Economic Forum’s 2016-2017 Global Competitiveness Index. The original data scale is [1 - 7], where 7 is the best score. The full question and associated answers of the Executive Opinion Survey for this indicator was:

In your country, to what extent are property rights, including financial assets, protected? [1 = not at all; 7 = to a great extent]

REGISTERING PROPERTY

This item measures the number of days and procedures necessary to register a property according to the formal government ledger system. It records the full sequence of procedures necessary to transfer the property title from seller to buyer when a business purchases land or a building. This information is critical because the more difficult property registration is, the more likely it is that assets stay in the informal sector, thus restricting the development of the broader public’s understanding and support for a strong legal and sound property rights system. Moreover, registration barriers discourage the movement of assets from lower to higher valued uses.

The Registering Property indicator reflects one of the main economic arguments set forth by Hernando de Soto: “what the poor lack is easy access to the property mechanisms that could legally fix the economic potential of their assets so they could be used to produce, secure or guarantee greater value in the extended market” (2000:48). This item is calculated as:

The data source chosen for measuring this item was The World Bank Group’s 2017 Doing Business Report. The original data scale is [1- ∞], where 1 is the best score.

EASE OF ACCESS TO LOANS

Access to a bank loan without collateral serves as a proxy for the level of development of financial institutions in a country. Financial institutions play an integral role in a strong property rights system, they bring economic assets into the formal economy. An important channel trying to alleviate poverty have been credit facilities. [1] conducted a study of 37 countries in Sub-Saharan Africa from 1992-2006 and concluded that not only do property rights reinforce the effect of narrowing inequalities with financial deepening, but that in their absence, it could be in detrimental to the poor.

The data chosen for this item was the 2016-2017 Global Competitiveness Index of the World Economic Forum. The original data scale is [1 - 7], where 7 is the best score. The full question and associated answers of the Executive Opinion Survey for this indicator was:

In your country, how easy is it for businesses to obtain a bank loan? [1 = extremely difficult; 7 = extremely easy]

II.3.- INTELLECTUAL PROPERTY RIGHTS

The Intellectual Property Rights component evaluates the protection of intellectual property. In addition to an opinion-based measure of the protection of intellectual property, it assesses the protection of two major forms of intellectual property rights (patents and copyrights) from de jure and de facto perspectives, respectively.

PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

This indicator captures a nation’s protection of intellectual property; therefore, it is a crucial aspect of the IPR component.  The data source chosen for this item was the 2016-2017 World Economic Forum’s  Global Competitiveness Index . The original data scale is [1 - 7], where 7 was the best score. Its Executive Opinion Survey used the following question and associated answers:

In your country, to what extent is intellectual property protected? [1 = not at all; 7 = to a great extent]

PATENT PROTECTION

This item reflects the strength of a country’s patent laws based on five extensive criteria: coverage, membership in international treaties, restrictions on patent rights, enforcement, and duration of protection. The data used for this item came from Ginarte-Park Patent Protection (1960-2010, International Patent Protection: 1960-2005, Research Policy, 2008, Vol. 37(4):761-766.  Specific Source: http://bit.ly/2mlYH1J Data: 2010). The original data scale is [0 - 5], where 5 was the best score. While this source is updated on a quinquennial basis, the next data release will occur in 2017.

COPYRIGHT PIRACY

The level of piracy in the IP sector is an important indicator of the effectiveness of the intellectual property rights enforcement in a country. The data source chosen for this item was the BSA Global Software Survey; The Compliance Gap (2016 edition, http://bit.ly/1TXs7i0) which estimates the volume and value of unlicensed software installed on personal computers, and also reveals attitudes and behaviors related to software licensing, intellectual property and emerging technologies. The original data scale is [0 – 100%], where 0 was the best score.

 

[1] Huang, Yifei and Singh, Raju Jan 2011. Financial Deepening, Property Rights and Poverty: Evidence from Sub-Saharan Africa. IMF Working Papers. Pp 1-31