Property Rights, Finance, and Entrepreneurship

By Simon JohnsonJohn McMillanChristopher Woodruff
1999| Working Paper No. 1574

Is investment constrained more by insecure property rights or by limited external finance? For five transition economies in Eastern Europe and the former Soviet Union we find that weak property rights limit the reinvestment of profits in startup manufacturing firms. Access to credit does not appear to explain differences in investment. At least in the early stages of post-communist reform, retained earnings appear to have been enough to finance the investments that managers wanted to make.